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Igoryamba
3 years ago
11

Given the following financial structure for Company S for all of 2016:

Business
1 answer:
Mila [183]3 years ago
3 0

Answer:

Explanation:

A.)

The Basic EPS can be determined by using the formula:

\mathtt{Basic \  EPS = \dfrac{Net \ income \ attributabe \ to\  common \ stock \ holders }{\text{common stock outstanding throughout the year}} }

\text{Given Net income = \$2,600,000}

\text{Net income available for common stock holders   = }\text{ Net income given less  dividend}

\text{ to preferred holders of stock}

\mathtt{=$2,600,000 - $100 \times 50000\times 6\%}

=\$2,300,000

\text{Common stock} = $800,000

∴

\mathbf{Basic  \ EPS = \dfrac{\$2,300,000}{800,000} }

\mathbf{Basic  \ EPS = \$2.88 \ per \ common \ stock}

B.)

The calculations for the numerator and denominator effect are:

\text{Calculation of the effect on incremental EPS}

Convertible on preferred stock  \mathtt{=\dfrac{500,000 \times 100 \times 6\%}{50000\times 5}}

=1.20

Convertible Bond =\dfrac{500,000 \times 8\%\times 70\%}{\dfrac{500,000}{1000\times 20}}

= 2.80

Stock options = \dfrac{0}{100,000- (100,000\times \dfrac{60}{80})}

= 0

Determination of the numerator & denominator effect for each convertible securities shown above are:

                            Numerator (N)   Denominator (D)  Dilution index = N/D

Net income          $2,600,000

Less: Preferred    $300000

Dividend

<em>Common stock A</em>

<em>Net income          </em>$2,300,000<em> </em>    800,000                      2.875

Add: Stock

Options (B)                  0                 25000

Total (C) = (A + B)  $2300000     825000                       2.788

Add: Convertible

Bonds (D)               428000          10000

Total (E) = (C+D)    $2328000      835000                       2.787

Add: Convertible

Preferred Stock (F) $300000     250000

Total (E) + (F)          $2628000    1085000                      2.422

C.)

Particulars                Dilutive Index       Rank (most dilutive is 1.)

Stock Option              2.788                              1

Convertible Bonds     2.787                              3

Preferred Stock          2.422                             2

D.)

From above, the convertibles are diluted EPS (DEPS)

\text{ DEPS =Net income available  common stockholders + net tax dividend on convertible securities}÷ \text{weighted average no. of common shares + effect of convertible stock + convertible stock options}

\text{DEPS (1{st} stage) for only common stock}= \dfrac{2300000}{800000} = \$2.88}

\text{DEPS (2{st} stage)with \ stock \ options}= \dfrac{2300000+0}{800000+25000} = \$2.788}

\text{DEPS (3{st} stage)with \ stock \ options \& preferred \ stock }= \dfrac{2300000+300000+0}{800000+250000+25000} = \$2.42}

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