Information from the financial statements of Henderson-Niles Industries included

Question

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2018: Common shares outstanding throughout the year Convertible preferred shares (convertible into 32 million shares of common) convertible 10% bonds (convertible into 13.5 million shares of common ) 100 million 60 million 900 million Henderson-Niles's net income for the year ended December 31, 2018, is $520 million. The income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock during 2018. Required Compute basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e. 10,000,000 should be entered as 10).) Numerator DenominatorEarnings per share Basic Diluted

Explanation / Answer

BASIC EPS

The formula for Basic EPS is = Net income - preferred dividends/ weighted average common shares.

The preferred dividend is = 32 Million X $2 per share = $64 Million

Basic EPS = ($520 - $64 ) / 100

                  = $456 / 100

                  = $4.56 Million per share

Diluted EPS

After-tax bond interest expense = $900 Million x 10 % x 60% = $54 Million

Net Income = $520 Million - $64 Million +$64 Million + $60Million = $580 Million

Shares assume converted to common (given above)

Preferred stock - 32 Million

Convertible bonds – 13.5 Million

Weighted average common shares = 100 Million + 32 Million + 13.5 Million

                                                       = 145.5 Million

Diluted EPS = $580 Million / 145.5 Million Shares

                    = $3.99 Million per share

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