Q1. An analyst compiled the following information from Hampshire, Inc.’s financial activities in the most recent year:
§ Net income was $2,800,000.
§ 100,000 shares of common stock were outstanding on January 1.
§ The average market price per share for the year was $250.
§ 10,000 shares of 6%, $1,000 par value preferred shares were outstanding the entire year.
§ 10,000 warrants, which allow the holder to purchase 10 shares of common stock for each warrant held at a price of $150 per common share, were outstanding the entire year.
§ 30,000 shares of common stock were issued on September 1.
Hampshire, Inc.’s diluted earnings per share are closest to:
A) $14.67.
B) $18.38.
C) $20.00.
Q2. Selected information from Feder Corp.’s financial activities for the year is as follows:
§ Net income was $7,650,000.
§ 1,100,000 shares of common stock were outstanding on January 1.
§ The average market price per share was $62.
§ Dividends were paid during the year.
§ The tax rate was 40%.
§ 10,000 shares of 6% $1,000 par value preferred shares convertible into common shares at a rate of 20 common shares for each preferred share were outstanding for the entire year.
§ 70,000 options, which allow the holder to purchase 10 shares of common stock at an exercise price of $50 per common share, were outstanding the entire year.
Feder Corp.’s diluted earnings per share (EPS) was closest to:
A) $5.87.
B) $5.32.
C) $4.91.
Q3. In applying the treasury stock method, if warrants allow the purchase of 1 million shares at $42 per share when the average
price is $56 per share, how many shares will be added to the firm’s weighted average number of shares outstanding?
A) 250,000.
B) 1,000,000.
C) 420,000.
Q4. Cassie Hamilton is an analyst with Pacers Worldwide, an investment banking firm. She just received the following information
(as of year-end) for Trotters Diversified:
§ Average common shares outstanding of 5.0 million.
§ Average market price for common stock of $35.00 per share.
§ Net income of $9.0 million.
§ Common stock dividends paid of $1.2 million.
§ Preferred dividends paid (on convertible preferred stock noted below) of $1.5 million.
§ Tax rate of 40%.
§ 500,000 shares of cumulative convertible preferred stock with $30 par value and 10% dividend. Each preferred share is convertible into 5 common shares.
§ 10,000 convertible $1,000 par bonds with a 6.0% coupon, each convertible into 8 shares of common stock.
§ 400,000 stock options recently issued with an exercise price of $32.00 per share.
In the denominator of the basic EPS calculation,
A) 0.
B) 80,000.
C) 10,000.
答案和详解如下：
Q1. An analyst compiled the following information from Hampshire, Inc.’s financial activities in the most recent year:
§ Net income was $2,800,000.
§ 100,000 shares of common stock were outstanding on January 1.
§ The average market price per share for the year was $250.
§ 10,000 shares of 6%, $1,000 par value preferred shares were outstanding the entire year.
§ 10,000 warrants, which allow the holder to purchase 10 shares of common stock for each warrant held at a price of $150 per common share, were outstanding the entire year.
§ 30,000 shares of common stock were issued on September 1.
Hampshire, Inc.’s diluted earnings per share are closest to:
A) $14.67.
B) $18.38.
C) $20.00.
Correct answer is A)
To compute Hampshire’s basic EPS ((net income – preferred dividends) / weighted average common shares outstanding), the weighted average common shares must be computed. 100,000 shares were outstanding from January 1, and 30,000 shares were issued on September 1, so the weighted average is 100,000 + (30,000 × 4 / 12) = 110,000. Basic EPS is ($2,800,000 – (10,000 × $1,000 × 0.06)) / 110,000 = $20.00.
If the warrants were exercised, cash inflow would be 10,000 × $150 × 10 = $15,000,000 for 10 × 10,000 = 100,000 shares. Using the treasury stock method, the number of Hampshire shares that can be purchased with the cash inflow (cash inflow / average share price) is $15,000,000 / $250 = 60,000. The number of shares that would be created is 100,000 – 60,000 = 40,000. Diluted EPS is $2,200,000 / (110,000 + 40,000) = $14.67.
Q2. Selected information from Feder Corp.’s financial activities for the year is as follows:
§ Net income was $7,650,000.
§ 1,100,000 shares of common stock were outstanding on January 1.
§ The average market price per share was $62.
§ Dividends were paid during the year.
§ The tax rate was 40%.
§ 10,000 shares of 6% $1,000 par value preferred shares convertible into common shares at a rate of 20 common shares for each preferred share were outstanding for the entire year.
§ 70,000 options, which allow the holder to purchase 10 shares of common stock at an exercise price of $50 per common share, were outstanding the entire year.
Feder Corp.’s diluted earnings per share (EPS) was closest to:
A) $5.87.
B) $5.32.
C) $4.91.
Correct answer is B)
Feder’s basic earnings per share ((net income – preferred dividends) / weighted average shares outstanding) was (($7,650,000 – ($1,000 × 10,000 × 0.06)) / 1,100,000 =) $6.41.
If the convertible preferred stock was converted to common stock at January 1, (10,000 × 20 =) 200,000 additional common shares would have been issued, dividends on the preferred stock would not have been paid, and Diluted EPS would have been ($7,650,000 / (1,100,000 + 200,000) = $5.88. Because $5.88 is less than basic EPS of $6.41, the preferred shares are dilutive.
Using the treasury stock method, if the options were exercised cash inflow would be (70,000 × 10 × $50 =) $35,000,000. The number of Feder shares that can be purchased with the inflow (cash inflow divided by the average share price) is ($35,000,000 / $62 =) 564,516.
The number of shares that would have been created is (700,000 – 564,516 =) 135,484. Diluted EPS was ($7,650,000 / (1,100,000 + 135,484) =) $6.19. Because this is less than the EPS of $6.41, the options are dilutive.
Combining the calculations, Diluted EPS was (($7,650,000) / (1,100,000 + 200,000 + 135,484) = $5.32.
Q3. In applying the treasury stock method, if warrants allow the purchase of 1 million shares at $42 per share when the average
price is $56 per share, how many shares will be added to the firm’s weighted average number of shares outstanding?
A) 250,000.
B) 1,000,000.
C) 420,000.
Correct answer is A)
The treasury stock method would allow the 1 million additional shares to be partially offset by the number of shares that could be repurchased with the amount of money received for those shares. In this case, the 1 million shares issued would be offset by (1,000,000 × $42 / $56) or 750,000 shares.
Q4. Cassie Hamilton is an analyst with Pacers Worldwide, an investment banking firm. She just received the following information
(as of year-end) for Trotters Diversified:
§ Average common shares outstanding of 5.0 million.
§ Average market price for common stock of $35.00 per share.
§ Net income of $9.0 million.
§ Common stock dividends paid of $1.2 million.
§ Preferred dividends paid (on convertible preferred stock noted below) of $1.5 million.
§ Tax rate of 40%.
§ 500,000 shares of cumulative convertible preferred stock with $30 par value and 10% dividend. Each preferred share is convertible into 5 common shares.
§ 10,000 convertible $1,000 par bonds with a 6.0% coupon, each convertible into 8 shares of common stock.
§ 400,000 stock options recently issued with an exercise price of $32.00 per share.
In the denominator of the basic EPS calculation,
A) 0.
B) 80,000.
C) 10,000.
Correct answer is A)
The calculation for basic EPS excludes the impact of complex capital elements.
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