A firm has Net Income of 200,000 and 50,000 shares of common stock outstanding.

Question

A firm has Net Income of 200,000 and 50,000 shares of common stock outstanding. However, they have 10,000 shares of Preferred Stock which received $2 per share in dividends. They also had warrants that can be converted into 20,000 shares of common stock for $25. Their current stock price is $30. They also have 600 bonds with a face value of 1,000 and a coupon rate of 6%. These bonds can be converted into15,000 shares of stock. Their marginal tax rate is 40%. What is their Primary EPS?

Explanation / Answer

=> EPS = 200000-10000*2)/(50000+20000*35/20 + 15000) = 180000/100000 = 1.8 therefore EPS =1.8

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