3. At January 1, 2017 the Leon White Company had 400,000 shares of common stok o

Question

3. At January 1, 2017 the Leon White Company had 400,000 shares of common stok outstanding. The only 2017 com 2017 when White sold an additional 100,000 shares. Net income for 2017 was $2.565,000 related transaction occurred on November 1 the income tax rate was 40%. White had the following securities on its books for the year ended December 31, 2017: (a) 20,000 shares of $100 par 10% nonconvertible, cumulative preferred stock. Stock was to sold at 102. Mo ,sumur ar prived Stol Dividna (b) 30,000 shares of 8% convertible, cumulative preferred stock, par S100, sold at 110. Each share of preferred stock is convertible into two shares of common. je) S2 face value of 8% nonconvertible bonds payable sold at par (d) $3,000,000 face value of 6% convertible bonds payable sold at par. Each suwb $1,000 bond is convertible into 20 shares of common. Dot oftea ees,yes do D (e) Options to purchase 10,000 common stock shares were issued Jan. 1, 2017. Option price was S30 per share; market value at end of year, $40, average market value Jan. 1 to December 31, 2017, S35 ViurrL Compute the required EPS figure(s) for 2017

Explanation / Answer

Basic EPS :-

Earning available for equity shareholder/WAOS

Calulation of dilutive EPS :

a) 10% non-convertible preference shares :-

No effect of dilutive EPS

b) 8% convertible prefenece shares :

Converted into equity shares = 30000 * 2 shares = 60000 shares

Dividend saving = $ 240000

c) 8% non-convertible bonds :- no effect on dilutive EPS

d) 6% convertible bonds :-

Converted into equity shares = $ 300000/ $1000 * 20 shares = 60000 shares

Interest saving net of tax = $ 300000 * 6% (1-40%) = $ 108000

e) Amount raised byu excercing the options :- 10000 options * 30$ per shares = $ 300000

Number of shares can be repurchased by using the raised amount = $300000/ $35 (average market price ) = 8571 shares.

Number of shares issues free of cost = 10000 shares - 8571 shares = 1429 shares

Thus Diluted EPS = 4.60

EPS Calculation Particular $ Net Income 2565000 Less : Preference dividend @ 10% for 20000 shares 200000 Less : Preference dividend @ 8% for 30000 shares 240000 Net income available for equity shareholders 2125000 Weighted average number of outstanding shares :- (WAOS) 400000 shares ( opening share balance) 400000 100000 shares ( Issued in nov.) * 2/12 16667 Total 416667

Basic EPS :-

Earning available for equity shareholder/WAOS

5.1

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