At December 31, 2017, the financial statements of Chimera Corporation included t

Question

At December 31, 2017, the financial statements of Chimera Corporation included the following data: Operating Income for 2017 $1,026,666,666 Common Stock, $1 par value Shares outstanding 1/1/17 138,750,000 Treasury shares purchased 2/1/17 22,200,000 2-for-1 stock split 7/1/17 New shares issued 9/1/17 16,650,000 Preferred Stock, 10%, $50 par, cumulative     nonconvertible $64,750,000 Preferred Stock, 8%, $40 par, cumulative,     convertible into 1.25 shares of common each $92,500,000 Bonds Payable, 12.5%, $1,000 par,     convertible into 100 shares of common each $185,000,000 Common stock warrants outstanding for    4,000,000 shares of common, option price $15 Market price of the stock averaged $20 per share during 2017. The convertible preferred stock and bonds payable were issued at par in 2015. The corporate tax rate for 2017 is 40%. Required: (1) Calculate Basic EPS; use good format (show all calculations) (2) Calculate Diluted EPS; use good format (show all calculations) At December 31, 2017, the financial statements of Chimera Corporation included the following data: Operating Income for 2017 $1,026,666,666 Common Stock, $1 par value Shares outstanding 1/1/17 138,750,000 Treasury shares purchased 2/1/17 22,200,000 2-for-1 stock split 7/1/17 New shares issued 9/1/17 16,650,000 Preferred Stock, 10%, $50 par, cumulative     nonconvertible $64,750,000 Preferred Stock, 8%, $40 par, cumulative,     convertible into 1.25 shares of common each $92,500,000 Bonds Payable, 12.5%, $1,000 par,     convertible into 100 shares of common each $185,000,000 Common stock warrants outstanding for    4,000,000 shares of common, option price $15 Market price of the stock averaged $20 per share during 2017. The convertible preferred stock and bonds payable were issued at par in 2015. The corporate tax rate for 2017 is 40%. Required: (1) Calculate Basic EPS; use good format (show all calculations) (2) Calculate Diluted EPS; use good format (show all calculations)

Explanation / Answer

1 Change Final Period in month Ratio (period/12) Average number of outstanding shares (Final*Ratio) Jan 1 Beginning 138750000 1                            0.08 11562500 Feb 1 Treasury Stock -22200000 116550000 5                            0.42 48562500 Jul 1 Split 2 for 1 116550000 233100000 2                            0.17 38850000 Sep 1 New 16650000 249750000 4                            0.33 83250000 12 182225000 2 Basic Earning Per Share (Net income-Preferred Dividend)/weighted average no of shares Basic Earning Per Share (1026666666-6475000-7400000)/182225000 Basic Earning Per Share                                                                                       5.56 Preferred Dividend 64750000*10%=6475000 92500000*8%=7400000 3 Additional share for the purpose of Dilluted earning per share 8% convertible preferred stock (92500000/40)*1.25 2890625 Stock Option: (20-15)/20(4000000) 1000000 12.5% Convertible Bond 185000000/1000*100 18500000 Total Additional shares for Dilluted EPS 22390625 Dilluted EPS: Net After tax income 1026666666 Add: back interest on bond 185000000*12.5% 23125000 Less: Income Tax 40% 40% 9250000 Net income for Dilluted EPS 1040541666 Diluted EPS 1040541666/(182225000+22390625) additional share) Diluted EPS                                 5.09

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