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    Diluted earnings per share

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    During 2009, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2009.

    Falwell's net income for the year ended December 31, 2009, was $2.5 million. The income tax rate is 40%. Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2009, and the price on 12/31/09 was $33.
    44. (1) What is Falwell's diluted earnings per share for 2009, rounded to the nearest cent?

    A. $3.14.

    B. $4.90.

    C. $4.34.

    D. Cannot determine from the given information.

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    Solution Preview

    For diluted EPS we need the diluted shares
    The common shares are 500,000
    The dividend on preferred stock is 50,000X6=300,000. Since the preferred stock is ...

    Solution Summary

    The solution explains how to calculate diluted earnings per share.