1 answer

Oriole Corporation had net income for the current fiscal year of $600,000, and common shares outstanding...

Question:

Oriole Corporation had net income for the current fiscal year of $600,000, and common shares outstanding of 96,000. There were no changes to Oriole’s common shares during the year. Oriole also had outstanding a $1,000,000, 9% bond sold in a previous year that was convertible to 66,000 common shares. In addition, Oriole sold a new bond on October 1 of the current year. The new bond was a $1,000,000, 11% bond, convertible to 60,400 shares. Oriole was subject to a tax rate of 22%. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately).

Calculate Oriole’s basic earnings per share. (Round answer to 2 decimal places, e.g. 15.25.)

______

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

______

Determine an incremental per share effect for 9% bonds. (Round earnings per share to 3 decimal places, e.g. 15.257.)

Potentially dilutive security Incremental
Numerator Effect
Incremental
Denominator Effect
EPS
9% Bonds $ $

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

________

Determine an incremental per share effect for 11% bonds. (Round earnings per share to 3 decimal places, e.g. 15.257.)

Potentially dilutive security Incremental
Numerator Effect
Incremental
Denominator Effect
EPS
11% Bonds $ $

Rank the potentially dilutive securities from most dilutive to least dilutive.

9% bonds                                                                       Rank 1Rank 2Anti-dilutive
11% bonds                                                                       Rank 1Rank 2Anti-dilutive

Calculate Oriole’s diluted earnings per share. (Round calculations of EPS to 3 decimal places, e.g. $3.545 and provide final answer to 2 decimal places, e.g. 15.25.)

Numerator Denominator EPS
Basic EPS $ $
Sub Total $
$ $
Diluted EPS

______


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
.

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