Share
Explore BrainMass

# Diluted earnings per share

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.

#### 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.

\$2.19