The Shamrock Corporation issued 10-year, $5,460,000 par, 7% callable convertible

Question

The Shamrock Corporation issued 10-year, $5,460,000 par, 7% callable convertible subordinated debentures on January 2, 2017. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 16:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Shamrock’s effective tax was 35%. Net income in 2017 was $8,000,000, and the company had 2,185,000 shares outstanding during the entire year.

(a) Compute both basic and diluted earnings per share. (Round answers to 2 decimal places, e.g. $2.55.)

Explanation / Answer

Answer

Basic eaming per share = 8000000 / 2185000

= 3.67

maturity value = 5460000 * 7%

= 382200

discount amortization = 1 - 0.98 * 5460000 * 1 / 10

= 10920

interest expense = 382200 + 10920

= 393120

1-tax rate 35% = 393120 * 65 %

= 255528

255528 + 8000000 = 8255528

debenture = 5460000 / 1000

= 5460

5460 * 16 = 87360

diluted earning per share= 8255528 / 2185000 + 87360

= 3.63   

.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.