450 | Practice Midterm | Answers
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View 450 | Practice Midterm | Answers as PDF for free.
More details
- Words: 232
- Pages: 3
BUSINESS 450 SUMMER 2009 -- TERM 2
SOLUTIONS TO MID-TERM EXAMINATION QUESTION 1 (10 marks)
(a)
Net income
183,000
Less: preferred dividends (15,000 x $0.30)
(4,500)
Net income attributable to common shares
Common shares outstanding:
178,500
months
Impact
January 1, 2008
12
500,000
500,000
May 1, 2008 issue
8
50,000
33,333
Oct 1, 2008 issue
3
200,000
50,000 583,333
Add: effect of stock dividend
10%
58,333 641,667
Basic earnings per share (178,500 / 641,667)
(b)
0.28
Potentially dilutive securities:
Convertible preferred shares:
Income effect
(15,000 x $0.30)
4,500
No of shares issued on conversion (30,000 x 1.1)
33,000
Impact on eps (4,500 / 33,000)
0.14
This is dilutive.
Convertible bonds:
Income effect
(500,000 @ 8% less 30% income tax)
28,000
No of shares issued on conversion (500 x 50 x 1.1)
27,500
Impact on eps (28,000 / 27,500)
1.02
This is anti-dilutive.
Stock options;
Proceeds from exercise of options (25,000 x $20)
500,000
Number of shares which could be acquired for that amount (500,000 / 22)
22,727
Additional shares which would need to be issued (25,000 - 22,727)
2,273
Adjust for stock dividend of 10%
2,500
This is dilutive.
Income for diluted earnings per share calculation
183,000
Weighted average shares for diluted eps calculation: Weighted average shares actually outstanding
641,667
Increase from conversion of preferred shares
33,000
Increase from exercise of options
2,500 677,167
Diluted earnings per share (183,000 / 667,167)
0.27
SOLUTIONS TO MID-TERM EXAMINATION QUESTION 1 (10 marks)
(a)
Net income
183,000
Less: preferred dividends (15,000 x $0.30)
(4,500)
Net income attributable to common shares
Common shares outstanding:
178,500
months
Impact
January 1, 2008
12
500,000
500,000
May 1, 2008 issue
8
50,000
33,333
Oct 1, 2008 issue
3
200,000
50,000 583,333
Add: effect of stock dividend
10%
58,333 641,667
Basic earnings per share (178,500 / 641,667)
(b)
0.28
Potentially dilutive securities:
Convertible preferred shares:
Income effect
(15,000 x $0.30)
4,500
No of shares issued on conversion (30,000 x 1.1)
33,000
Impact on eps (4,500 / 33,000)
0.14
This is dilutive.
Convertible bonds:
Income effect
(500,000 @ 8% less 30% income tax)
28,000
No of shares issued on conversion (500 x 50 x 1.1)
27,500
Impact on eps (28,000 / 27,500)
1.02
This is anti-dilutive.
Stock options;
Proceeds from exercise of options (25,000 x $20)
500,000
Number of shares which could be acquired for that amount (500,000 / 22)
22,727
Additional shares which would need to be issued (25,000 - 22,727)
2,273
Adjust for stock dividend of 10%
2,500
This is dilutive.
Income for diluted earnings per share calculation
183,000
Weighted average shares for diluted eps calculation: Weighted average shares actually outstanding
641,667
Increase from conversion of preferred shares
33,000
Increase from exercise of options
2,500 677,167
Diluted earnings per share (183,000 / 667,167)
0.27
Related Documents
450 | Practice Midterm | Answers
June 2020 7
450 | 2009 | Practice Midterm
June 2020 5
Midterm Answers
May 2020 4
Practice Midterm
June 2020 7
Answers: Math Midterm 2
June 2020 8