|Author||Topic: Diluted EPS - Conv. P.S.|
|I'm confused with the add/subtract of the Pref Dividends in this question. I would assume to subtract the pref div. from the NI but in this example it was added to the numerator.
Earnings for equity in year to 31/Dec/X1: $4,000,000
Common stock of $10 each: $20,000,000
There have been an issue throughout the year $5,000,000 of 7% convertible preferred stock. The terms of conversion are that every $10 nominal value of preferred stock can be converted to 1.1 common shares.
Calculate fully diluted EPS for 20X1.
Basic EPS = $2.00
Diluted EPS = $1.71
Should I subtract the pref dividend or add the pref dividend?
-If added I would get the answer above
-If subtracted it's something else, or/if (netted from -pref. div + convert. pref div), then EPS would also be different
|Net income = earning for equity + dividend paid
4,000,000 + 350,000 = 4,350,000
Basic EPS: net income – divided paid/numbers of shares outstanding.
4,000,000/200,000 = 2
Diluted EPS = 4,350,000/ 2,550,000 =1.70588
Preferred stock = 5,000,000/10 = 500,000
Preferred stock = 1.1 common stock
500,000x 1.1 = 550,000
If it was net income in place of earning from equity then dividend would have deducted for basic EPS calculation
|Even i am confused with these kind of problems ....
I got that the dividend paid comes from
the convertible preffered stock =50,00,000 * .07 = 3,50,000.
|Hey! Where did you got 350 k dividents paid? There were no such figures in problem's situation!|
CFA Discussion Topic: Diluted EPS - Conv. P.S.
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