Information from the financial statements of Henderson-Niles Industries included
ID: 2571864 • Letter: I
Question
Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2016:
Henderson-Niles’ net income for the year ended December 31, 2016, is $920 million. The income tax rate is 40%. Henderson-Niles paid dividends of $3 per share on its preferred stock during 2016.
Compute basic and diluted earnings per share for the year ended December 31, 2016.
Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2016:
Explanation / Answer
Basic earnings per share = $920 million - (65 million * $3) / 100 million shares
= $7.25
Diluted earnings per share:
Dividends not paid $195 millions
Additional shares 30 million shares
Conversion ratio = $195 / 30
= $6.5
Interest not paid (net of tax) = (2600 millions * 10%)*60%
= $156 millions
Additional shares = 21.5 million shares
Conversion ratio = $156 / 21.5
= $7.26
Diluted Earnings per share = $920 - $195 + $195 / 100 + 30
= $7.07