## Answers

a) | Calculate Oriole’s basic earnings per share | ||||

EPS=EAE(Earning Available For Equity)/No. Of Outstanding Shares | |||||

Total No. Of Outstanding Shares | 222400 | ||||

Earning Available For Equity | 600,000 | ||||

EPS | 600,000 | ||||

222400 | |||||

EPS | 2.70 | ||||

b) | Calculate the after-tax interest paid on the 9% bonds. | ||||

Interest paid after tax formula | Interest Rate(1-Tax Rate) | ||||

Interest Rate | 9% | ||||

Tax Rate | 22% | ||||

Interest paid after tax | 7.0% | ||||

c) | Determine an incremental per share effect for 9% bonds. | ||||

EPS=EAE(Earning Available For Equity)/No. Of Outstanding Shares | |||||

EPS before 9% Bond convertible share | |||||

Total No. Of Outstanding Shares | 156400 | ||||

Earning Available For Equity | 600,000 | ||||

EPS | 600,000 | ||||

156400 | |||||

EPS | 3.84 | ||||

EPS After 9% Bond convertible share | |||||

Total No. Of Outstanding Shares | 222400 | ||||

Earning Available For Equity | 600,000 | ||||

EPS | 600,000 | ||||

222400 | |||||

EPS | 2.70 | ||||

D) | Calculate the after-tax interest paid on the 11% bonds. | ||||

Interest paid after tax formula | Interest Rate(1-Tax Rate) | ||||

Interest Rate | 11% | ||||

Tax Rate | 22% | ||||

Interest paid after tax | 8.6% | ||||

e) | Determine an incremental per share effect for 11% bonds. | ||||

EPS=EAE(Earning Available For Equity)/No. Of Outstanding Shares | |||||

EPS before 11% Bond convertible share | |||||

Total No. Of Outstanding Shares | 162000 | ||||

Earning Available For Equity | 600,000 | ||||

EPS | 600,000 | ||||

162000 | |||||

EPS | 3.70 | ||||

EPS After 11% Bond convertible share | |||||

Total No. Of Outstanding Shares | 222400 | ||||

Earning Available For Equity | 600,000 | ||||

EPS | 600,000 | ||||

222400 | |||||

EPS | 2.70 | ||||