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EPS with Convertible Bonds & Preferred Stock

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The Ottey Corporation issued 10-year, $1,000,000 par, 7% callable convertible subordinated debentures on January 2, 2010. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Ottey's effective tax was 35%. Net income in 2010 was $7,500,000 and the company had $2,000,000 shares outstanding during the entire year.

Instructons:

(a) Prepare a schedule to compute both basic and diluted earnings per share.
(b) Discuss how the schedule would differ if the security was convertible preferred stock.

Please use excel and show all work, thanks!

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Solution Summary

The expert examines EPS with convertible bonds and preferred stocks.

$2.19