Can someone explain me, I can`t understand this questions, I need a step by step:
For its fiscal year- end, Calvan Water Corporation (CWC) reported net income of $12 million and a weighted average of 2,000,000 common shares outstanding. The company paid $800,000 in preferred dividends and had 100,000 options outstanding with an average exercise price of $20. CWC’s market price over the year averaged $25 per share. CWC’s diluted EPS is closest to:
By the way, you’d better calculate basic EPS as well, if the diluted EPS is bigger than basic EPS, you should use basic EPS instead of Diluted EPS,in this question, the basic EPS is 5.6, so use 5.54 as diluted EPS is correct.
Also, be careful when the basic EPS is negative: the rules for when a security is dilutive and when it is antidilutive are reversed: a smaller negative EPS is antidilutive whereas a smaller positive EPS is dilutive.