12. Ignatius Corporation had 16 million shares of common stock outstanding durin
ID: 2422841 • Letter: 1
Question
12. Ignatius Corporation had 16 million shares of common stock outstanding during the current calendar year. It issued 21,000, $1,000, convertible bonds on January 1. Each bond is convertible into 50 shares of common stock. The bonds were issued at face amount and pay interest quarterly at an annual rate of 12%. On June 30, Ignatius issued 210,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data (rounded to 2 decimal places) on its net income of $31 million:
$1.94
a) Option c
b) Option a
c) Option d
d) Option b
12. Ignatius Corporation had 16 million shares of common stock outstanding during the current calendar year. It issued 21,000, $1,000, convertible bonds on January 1. Each bond is convertible into 50 shares of common stock. The bonds were issued at face amount and pay interest quarterly at an annual rate of 12%. On June 30, Ignatius issued 210,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data (rounded to 2 decimal places) on its net income of $31 million:
Explanation / Answer
Calculation of BEPS Net income 31 Less: Dividend on Preferred Stock 0.63 (210000*100*0.06*1/2)/1000000 Earnings for common stockholder 30.37 No. of Common Shares 16 BEPS 1.9 Calculation of DEPS BASIC DILUTED EBIT 54.19 54.19 Less: Interest 2.52 0 EBT 51.67 54.19 Less: Tax 20.67 21.67 Net income 31.00 32.51 Less: Dividend on Preferred Stock 0.63 0.63 Earnings for common stockholder 30.37 31.88 No. of Common Shares 16.00 17.05 16 + (21000*50)/1000000 BEPS 1.90 DEPS 1.87
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