Inferno Co. is a manufacturer and distributer of precision navigation and guidan
ID: 2589367 • Letter: I
Question
Inferno Co. is a manufacturer and distributer of precision navigation and guidance equipment. The following is information about the company's earnings and securities on 31 December 2017 (Note: round all per share values to three decimal places) Earnings and Shares Net income Beginning balance of common shares outstanding Year-end balance of 10% cumulative preferred shares outstanding ($25 par) Average market price of common stock Tax rate $275,000 175,000 10,000 40 25% Additional Information on Stock Transactions On March 1, 2017, Inferno repurchased 24 thousand previously issued shares. On July 1, Inferno sold and issued an additional 30 thousand shares of common stock at $30 Series A Series B Convertible bonds Face amount and carrying value Interest rate Number of shares issuable 55,000 65,000 9% 10,000 11% 3,800 Warrants 3,000 Options and Warrants Number of shares issuable Exercise price ons 7,500 $ 27 $ 35 Requirement 1: Calculate Basic EPS Net income Preferred dividends paid Income available to common stockholders (IACS eighted average common shares Basic EPSExplanation / Answer
Shares o/s Fraction of year O/s for Weighted no.ofshares(Col.3*4) Jan 1,2017- Feb 2017 Beginning balance 175000 2/12 29167 Mar 1-June 30.2017 Repurchase of 24000 shares 151000 4/12 50333 June 1-Dec 30.2017 Issue of 30000 shares 181000 7/12 105583 Weighted no.of shares o/s 185083 Requirement 1 Calculation of Basic EPS Net Income 275000 Preferred dividends paid(25*10000*10%) 25000 Income available to common stock holders 250000 Weighted Average common shares 185083 Basic EPS=250000/185083= 1.351 Requirement :2 Series A Convertible bonds Interest expense(55000*9%) 4950 Taxes (25%*4950) 1237.5 Adjustment to IACS 3712.5 Shares to be issued 10000 Per share effect of Series A convertible bonds 0.371 Series B Convertible bonds Interest expense(65000*11%) 7150 Taxes (25%*7150) 1787.5 Adjustment to IACS 5362.5 Shares to be issued 3800 Per share effect of Series B convertible bonds 1.411 Options Additional shares of common stock 7500 Less: Treasury stock purchased(7500*27)/40= 5063 Incremental shares 2438 Per share effect of options 0.001 Basic EPS/Incremental shares) Warrants Additional shares of common stock 3000 Less: Treasury stock purchased(3000*35/40) 2625 Incremental shares 375 Per share effect of options 0.004 Basic EPS/Incremental shares) Requirement :3 IACS Shares EPS Basic EPS 250000 185083 1.351 Series A Convertible bonds 3712.5 10000 0.371 Series B Convertible bonds 5362.5 3800 1.411 Options 2438 -0.001 Warrants 375 -0.004 Diluted EPS 201696 3.129