- 1,000,000 shares of $100 par, 5% preferred outstanding each conv to 2 common. Mkt price $20/share and common trades at $11/share. - 100,000 warrants out each conv to 100 common. Exercise price $10/share. Avg price $12/share - NI $20,000,000 or $1.50 basic EPS on 10,000,000 weighted avg common out Diliuted EPS for the one yr period is closest to: 1. $1.67 2. $1.50 3. $1.45 4. $1.29 I went with C. Can anyone justify another answer?
Has to be either 3, 4 obviously. It seems to be ‘close’ to 3, like below: 20M / ( 10M + 1.667M + 2M ) Preferred is dilutive since 20$/pref.share => 10$/commonshare when Avg price is 12$ 2/12*100K*100 for warrants (tsy stk method). But, the number turns out to be: 1.46341 I am not convinced. Do you know what is the right one?
Basic EPS = 1.50 With the preferred conversion: Numerator = 1000000*100*.05 = 5000000 Denominator = 1000000*2 = 2000000 Change in EPS only due to this: 2.50 > 1.50. So Anti Dilutive. Do not consider. 2/12 (100000) * 100 = 1.67 Mill shares Diluted EPS: (20 - 5)/(10+1.67) = 1.285 ==> 1.29 Answer 4
cpk123 is correct. Stalla produces answer 4 also However, I was under the impression that you calculate diluted EPS (with multiple potentially dilutive securities) at the same time. For instance the way the way nodoubt performed the calc. So I guess each potentially dilutive security needs to be treated seperately?
You test for dilution with each one separately. Some may turn out not being dilutive, and your final diluted EPS would include only the effect of those dilutive securities.
Thanks map and cpk Greatly appreciated!!