# EPS2...The revenge...

A company has a 31 December year end. At the beginning of the year it issues 1000 shares with a par value of \$1 each for a total prie of \$10000. On February 1 it carries out a 20% bonus issue. On March 1 it issues another 500 shares at a price of \$55 each. On September 1 it buys back 400 shares. During the year a stock options plan was also introduced, the plan gives Directors the right to buy 2000 shares at a price of \$5. Net income is \$20000. Assuming the company has no preference stock in issue and the average stock price across the year is \$6 what are the basic and diluited EPS? A)13.49 and 13.49 B)13.49 and 11.00 C)11.00 and 13.19 D)13.19 and 11.00

gonna try to solve it right in this textbox treasury stock method: [1000*12 + 200*12 + 500*10 - 400*4)/12 = 1483.3333 shares outstanding 13.49 basic EPS assume option exercised at \$5, average price is 6 you are adding (6-5)*2000 worth of shares = \$2000 ==> 333 shares diluted EPS = 20000/(1483 + 333) \$11.01 B)13.49 and 11.00

B

B

yep…I got it right as well Nice question…isnt it?

this question would be a bitch had they not told you the average price of the stock and had you figure it out other than that i’ll be pretty happy to come across a question like this

And you can always reason B over A, since the warrant exercise is dilutive (exercise price < average price during the year)

good call