Answer:
Basic EPS = $1.359 million
Diluted EPS = $1.195 million
Explanation:
For Basic EPS we need to calculate the number of shares outstanding
Shares as on Jan 1 = 450 million
Treasury shares on Sep 1 = 48 million × (4 months ÷ 12 months)
= 16 million
Number of shares o/s = Shares as on Jan 1 - Treasury shares on Sep 1
= 450 million - 16 million
= 434 million
Basic EPS = Net Income ÷ Number of shares o/s
= $590 million ÷ 434 million
= $1.359 million
For Diluted EPS,
Interest savings = 10% × $ 250 million
= $25 million
Adjusted Net Income = Net Income + After tax interest savings
= $590 million + [25 millions - 40(25million)]
= $590 million - $15 million
= $575 million
and weighted number of shares will include the bonds, that are convertible
Outstanding shares as computed = 434 million
Bond conversion Shares = 47 million
Total shares outstanding = Outstanding shares as computed + Bond conversion Shares
= 434 million + 47 million
= 481 million
Diluted EPS = Adjusted Net income ÷ Total shares outstanding
= $575 million ÷ 481 million
= $1.195 million
