question archive Pharoah Corporation had net income for the current fiscal year of $852,000, and common shares outstanding of 80,000
Pharoah Corporation had net income for the current fiscal year of $852,000, and common shares outstanding of 80,000
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Pharoah Corporation had net income for the current fiscal year of $852,000, and common shares outstanding of 80,000. There were no changes to Pharoah's common shares during the year. Pharoah also had outstanding a $1,000,000, 8% bond sold in a previous year that was convertible to 82,000 common shares. In addition, Pharoah sold a new bond on October 1 of the current year. The new bond was a $1,000,000, 12% bond, convertible to 76,800 shares. Pharoah was subject to a tax rate of 23%. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately).
Determine an incremental per share effect for 8% bonds.
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EPS=EAE(Earning Available For Equity)/No. Of Outstanding Shares
Answer:
EPS before 8% Bond convertible share
Total no. of shares outstanding = 80,000 + 76,800 = 156,800
Earning Available for Equity = Net income = $852,000
EPS = 852,000/156,800 = 5.43
EPS after 8% Bond convertible share
Total no. of shares outstanding = 80,000 + 76,800 + 82,000 = 238,800
Earning Available for Equity = Net income = $852,000
EPS = 852,000/238,800 = 3.57
