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Compute basic EPS, diluted EPS, book value per share

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As an analyst you have gathered the following information about a company for the year ended December 31, 2009:
? Net income was $10.5 million.
? Stockholders' equity at December 31, 2009 was $100 million.
? Common stock dividends of $3.5 million were paid.
? 20 million shares of common stock were outstanding on January 1,2009.
? The company issued 6 million new shares of common stock April 1, 2009.
? Outstanding preferred shares:
5 million shares, each convertible into 1.5 common shares par value $1 per share; liquidating value $5 per share Annual dividend $4 per share.

Required:

a. Compute the company's basic EPS for 2009.
b. Compute the company's diluted EPS for 2009.
c. Compute the company's book value per share at December 31, 2009.
d. Compute the company's book value per share at December 31, 2009 assuming conversion of the preferred shares into common shares.
e. Explain why the diluted calculations (part b and d) provide pre-share amounts that are more suitable for valuation than the amounts calculated in parts a and c.

(Please show all supported calculation to the answer)

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ANSWERS

Required A
Basic EPS = ($10.5 million - $.40*5 million)/(20 million*3/12 + 26 million*9/12) = $0.35
Note: I assumed that the $4 dividend per preferred share is a ...

Solution Summary

The expert computes basic EPS, diluted EPS, and book value per shares.

$2.19
See Also This Related BrainMass Solution

Hemington Company: Compute basic and diluted EPS

At December 31, 2011, Hemington Company had 320,000 shares of common stock outstanding. Hemington sold 80,000 shares on October 1, 2012. Net income for 2012 was $1,985,000; the income tax rate was 35%. In addition, Hemington had the following debt and equity securities on its books at December 31, 2011.

a) 30,000 shares of $100 par, 8% cumulative preferred stock.
b) 25,000 shares of 10% convertible cumulative preferred stock, par $100, sold at 110. Each share of preferred stock is convertible into three shares of common stock
c) $1,500,000 face value of 9% bonds sold at par
d) $2,500,000 face value of 7% convertible bonds sold to yield 8%. Unamortized bond discount is $150,000 at December 31, 2011. Each $1,000 bond is convertible into 22 shares of common stock.

Also, options to purchase 20,000 shares of common stock were issued May 1, 2012. Exercise price is $20 per share; market value at date of option was $19; ending market value on December 31, 2012, $25.

Instructions:

For the year ended December 31, 2012, Compute basic and diluted EPS

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