Assume that the following data relative to Metro Co. for 20x1 is available: Net
ID: 2536387 • Letter: A
Question
Assume that the following data relative to Metro Co. for 20x1 is available: Net Income (30% tax rate): $3,200,000 Transactions in common shares 1/ Beginning number 3/1 Purchase of treasury shares (60,000) 6/1 Stock split, 2 for 1 11/1 Issuance of shares 1,000,000 shares 120,000 9% cumulative convertible preferred stock Sold (in 20x0) at par, convertible into 200,000 shares of common $1,000,000 Stock options Exercisable at the option price of S25 per share Average market price in 20x1 is S30. 60,000 shares Compute the basic and diluted EPS for 20x1.Explanation / Answer
Basic EPS = Earnings available for Equity Shareholders/Weighted Average Number of Equity Shares outstanding during the year
=2150,000/1518,333 = $1.416
Diluted EPS = 2240,000/(2000,000+200,000+60,000)
= 2240,000/2260,000 = $0.991
Earnings for Equity:
Net Income = 3200,000
Less Income Tax @ 30% = 960,000
Income After Tax = 2240,000
Less: Preference Dividend 90,000
Income for Equity = 2150,000
Computation of Weighted Average Number of Equity Shares:
1/1 Beginning Number 1000,000 *12/12 = 1000,000
Shares bought back 60,000*10/12 (50,000)
Stock Split 940,000*7/12 = 548,333
Issuance of Shares 120,000*2/12 = 20,000
Weighted Average Number of Equity Shares = 1518,333
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