Ajax Company’s capital structure was as follows:
12.31.04 12.31.03
Shares outstanding:
Common 200,000 200,000
Convertible preferred 5,000 5,000
6% Convertible Bonds $500,000 $500,000
- During 2004, Ajax paid dividends of $2.00 per share on its preferred stock.
- The preferred shares are convertible into 10,000 shares of common stock.
- The 6% bonds are convertible into 15,000 shares of common stock.
- Net income for 2004 was $400,000.
- Assume that income tax rate is 40%.
Ajax’s basic and diluted earnings per share for 2004 are:
Diluted EPS: [400,000 + (30,000 × 0.6)] / [200,000 + 10,000 + 15,000] = $1.86 per share
My question: Where does the “30,000 x 0.6” come from?
Thank you