On December 31, 2005, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10).
On February 28, 2006, Merlin issued an additional 36,000 shares of common stock. On September 1, 2006, 9,000 shares were retired.
At year-end, there were executive stock options outstanding for 33,000 shares of common stock which were issued on December 31, 2005 and which had been adjusted for the stock dividend.
The exercise price was $18. On December 31, 2006, 40,000 stock options were granted with an exercise price of $21. The market price of the common stock during the year had averaged $20.
Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2003 and convertible into 50,000 common shares (adjusted for the stock dividend).
Net income was $900,000. The tax rate for the year was 40%. A 10% stock dividend was declared and distributed on July 1, 2006.

Required:
Compute basis and diluted EPS for the year ended December 31, 2006.