Confusing diluted EPS Q- Magician sir plz help

CFA Level I
#1
  1. A company has a complex capital structure. It had 100,000 common shares on its balance sheet at the start of 2013. It had 10,000 warrants to be exercised at $15 and each warrant can be exercised into 2 common shares. The average stock price of the company was $10 during the year. The stock price at the end of year was $20. The company’s earnings for the year are $2,000,000. It also had 50,000 non-convertible preferred shares with a par value of $100. The preferred dividend is 8% per annum. The marginal tax rate is 40%. What is the diluted EPS of the company?

a) $15.24

b) $16.00

c) $17.77

#2

The warrants want 20k shares. But proceeds can only rebuy 15k from the AMP, so you need to issue 5k more. Subtract 400k preffered dividends from earnings. The answer is (a).

#3

I get (a).

The income available to the common shareholders is $2,000,000 – 50,000($100)(0.08) = $1,600,000.

The warrants are (apparently) dilutive: the exercise price is $15.00/2 shares = $7.50/sh when the average share price is $10/sh. Exercising 10,000 warrants will generate 10,000($15.00) = $15,000 on an issue of 10,000 × 2 = 20,000 shares. At an average share price of $10.00/share, $150,000 will allow the company to repurchase 15,000 shares, so the net issuance will be 20,000 – 15,000 = 5,000 shares.

The fully diluted EPS is $1,600,000 / (100,000 + 5,000) shares = $15.24/sh.

#4

wont we consider avg market price? and no dilution will be thr

#5

The warrant price appears to be for two shares, so it’s dilutive ($7.50/sh).

#6

oh got it tanx

#7

You’re welcome.