Answer:
EPS is $2.9 per share
Diluted EPS is $1.54 per share
Explanation:
Basic Earning per share is calculated dividing Earning for the year excluding preferred dividend by weighted average number of shares.
Basic EPS = (Net Income - Preferred dividends) / Weighted Average numbers of share
Basic EPS = ($2,152,000 - $180,000) / 680,000 = $2.9 per share
Diluted earning per share is calculated by adjusting all the convertible share options or securities in the outstanding share.
Diluted EPS = (Net Income - Preferred dividends) / Diluted numbers of share
Diluted EPS = ($2,152,000 - $180,000) / ( 680,000 + 600,000 )
Diluted EPS = $1.54 per share
To resolve a problem or select between multiple options
Answer:
a. In order to determine the present value of lease we can use the same APR as the car loan (7%). We can use the present value of an annuity formula:
PV = monthly payment x annuity factor
- monthly payment = $509
- PV annuity factor, 0.58333%, 48 periods = 41.76344
PV of the annuity = $509 x 41.76344 = $21,257.59
total present value of lease contract = $21,257.59 + $109 = $21,366.59
b. the present value of purchasing the car is $40,000 - $28,000/1.07⁴ = $40,000 - $21,361.07 = $18,638.93
c. the break even resale price = (sales price - PV of lease) x (1 + 7%/12)⁴⁸ = ($40,000 - $21,366.59) x (1 + 0.07/12)⁴⁸ = $18,633.41 x 1.32205 = $24,634.37
