Question on Weighted avg no of stocks , EPS

Hey all ,

Finding this question a bit hard , if someone can solve it and explain , it would be awesome .

The company currently has 1mil stocks o/s

on 1 March is issues another 100,000 shares

1st August 10% stock divided is given

1st Oct a 2 for 1 stock split is provided

There were 100,000 warrents held by members which gave them the right to convert for 10 shares each . the avg. price of the stock was 60$ for the year.

there were also 100,000 convertable bonds and 50,000 convertable preference shares . Tax rate of 20% .

what will be the no of weighted avg shares used for calculating the EPS ?

Would love some help guys , got only 1 day left for the exam .

Help,

HedgeFudge

1 mill + (0.1 * 10/12) x 1.1 x 2 = 2,383,333 shares outstanding

100,000 warrants x 10 = 1 million (added to above total)

For the convertible bonds, and preference shares, I don’t see a specification for how many shares they convert to?? So if they convert to 1 share each, which I’ve never seen, that would be + 150,000 shares

Total shares = 3,533,333

Someone can correct me if I made errors though.

edit: i forgot to buy back the warrant shares. but I’m a little confused, does the question provide enough info to determine how much shares can be bought back?? Usually there’s an exercise price for warrants we can use to determine how much $$ we get from the conversion…

They’re asking in the context of EPS, not diluted EPS, so I would think the warrants are irrelevant in that case.

its for diluted EPS :

and sorry for got to type , avge price of share is 60$ , excise price of warrents is 45$ .

and convertable pref are 1:1

@Shoot : can you explain the calculation plz ?

I’m having a tough time with EPS

Our guru, S2000Magician, wrote amazing articles on this: http://financialexamhelp123.com/earnings-per-share-eps/

http://financialexamhelp123.com/weighted-average-common-shares-outstanding-wacso/

Hmm. …How would you, when asked for Diluted EPS, account for the stock split/stock dividend with respect to stock options/warrants, convertible debt.etc? Would a 2:1 stock split increase your 100.000 warrants to 200.000 if they warrants would have been outstanding since begin of the year?

It’s typically a good idea to include all relevant information when asking for help (you said EPS, not diluted, and left out the excercise price!) wink

This is something I’d really like to know as well. If these warrants and covertible bonds, etc. are outstanding from beginning of year, I would assume they get hit with the stock dividend and split as well?? I haven’t come across many (any?) questions of these convertible securities where the TIMING is critical, usually the questions are vanilla/straightforward, so I’d be interested in hearing what to do if there are dates involved in these convertibles.