PROBLEM 6–4 The financial data below should be used to answer the following two questions. PROBLEM 6–8A WRESTLING FEDERATION OF AMERICA, INC.

Capital Structure and Earnings for Year 7 Number of common shares outstanding on December 31, Year 7 .............................. 2,700,000 Number of common shares outstanding during Year 7 (weighted average)............... 2,500,000 Market price per common share on December 31, Year 7.......................................... $ 25 Weighted-average market price per share during Year 7 ........................................... $ 20 Options outstanding during Year 7:

Number of shares issuable on exercise of options................................................. 200,000 Exercise price ........................................................................................................ $ 15 Convertible bonds outstanding (December 31, Year 3, issue date):

Number of convertible bonds................................................................................. 10,000 Shares of common issuable on conversion (per bond)........................................... 10 Coupon rate........................................................................................................... 5.0%

Proceeds per bond at issue (at par value)............................................................. $ 1,000 Net income for Year 7................................................................................................. $6,500,000 Tax rate for Year 7...................................................................................................... 40.0%

1. Basic earnings per share for Year 7 is (choose one of the following):

a. $2.41

c. $2.60

b. $2.57

d. $2.50 2. Diluted earnings per share for Year 7 is (choose one of the following):

a. $2.43

c. $2.54

b. $2.55

d. $2.60