United Airlines capital structure was as follows: December 31, 2018 # of outstan
ID: 2432115 • Letter: U
Question
United Airlines capital structure was as follows: December 31, 2018
# of outstanding common shares 10,000
# of convertible preferred shares 1,000
10% convertible bonds 120,000
During 2018 United Airlines paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 2,000 shares of common stock, and the 10% bonds are convertible into 3,000 shares of common stock. Tax rate 30%.
If net income for 2018 is $42,000, United Airlines should report Diluted EPS as
3.16
3.5
3.9
3.36
If net income for 2018 is $29,200 United Airlines should report Diluted EPS as
2.43
2.9
2.75
2.5
Explanation / Answer
calculating no of shares outstanding = 10000+2000(preferred convertable)+3000(10%bonds convertable)
= 15,000 shares outstanding.
net income (adjusted) = $ 42,000 + 120000*10% (1-0.3) = 50400
diluted eps if net income is $42,000 = 50400/15000 = 3.36
diluted eps if netincome is $29200 = ((29200 + 120,000*10% (1-0.30) )) /15000shares = 2.50
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