5. The following information was taken from the books and records of Simonic, In

Question

5. The following information was taken from the books and records of Simonic, Inc.: (i) Net Income $ 560,000 (ii) Capital structure: (a) Convertible 6% bonds. Each of the 300 $1,000 bonds is convertible into 50 shares of common stock at the present date and for the next 10 years. $ 300,000 (b) $10 par common stock, 200,000 shares issued and outstanding during the entire year. $2,000,000 (c) Stock options outstanding to buy 16,000 shares of common stock at $20 per share. (iii) Other information: (a) Bonds converted during the year NONE (b) Income tax rate 30% (c)Average market price per share of common stock during year $32 (d) Warrants were outstanding the entire year (e) Warrants exercised during the year NONE REQUIRED: (a) Is the capital structure simple or complex? Explain. (b) Compute basic earnings per share. (c) Compute diluted earnings per share.

Explanation / Answer

a) Capital structure is complex. It consist of more than one class of shares. Common stock, convertable bonds and employees stock option

b) basic EPS Net Income/ Number of common stock   560,000/200,000   = 2.8

c) Dialuted earning per share:

        Dialuted earning:    Net Income:   560,000

      Add: Bond Interest                           18,000

    Less: Tax saved on interest                5,400

Dialutive earning                                   572,600

     Shares ouut standing:   Common shares               200,000

                                          Stock option                        16,000

                           Convertable bond (300*50)             15,000

                                                                                   231,000

Dialuted EPS    572,600/231,000                =   2.48

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

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