Diluted EPS par, following, question, company, common

YouCanDoIt

Hello fellow AF'ers 44 days left. Time to buckle down.

Please help with this qbank question.

The following data pertains to the sapphire company:
Net income is $15000
5000 shares of common stock issued on Jan 1st
10% stock dividend issued June 1st
1000 shares of common stock were repurchased july 1st
1000 shares of 10%, 100 par preferred stock each convertible into 8 shares of common were outstanding the whole year

What is the companys diluted earnings per share? the answer is $1

Please discuss in detail.

smartpants

1/1 5000
6/1 10% stock dividend *1.1 = 5500 * 12/12 = 5500
7/1 1000 repurchased -> -1000 * 6/12 = -500
total # of shares = 5000

without dilution effect: EPS = (15000 - 1000 * 100 * .1 )/5000 = 5000/5000 = 1$

with dilution: say all preferred is converted.
Numerator = 15000
denominator = 5000 + 1000*8 = 13000

EPS = 15/13 > 1$ (anti-dilutionary).

so 1$=Diluted EPS.

CP

Micholien

that is the definition...always from beginning of period.

CP

Beatnik

finspert Wrote:
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> Thanks!


and splits too braaah.