Green Corporation has the following capital structure as of December 31, 20x3: Convertible bonds, 6% $10,346,125 Preferred

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Question:

Green Corporation has the following capital structure as of December 31, 20x3:

Convertible bonds, 6% $10,346,125

Preferred Shares – Series A, 5%, noncumulative 5,000,000

Preferred Shares – Series B, $4, cumulative, 80,000 shares issued and outstanding 8,000,000

Contributed Surplus – Convertible Bonds 365,000

Contributed Surplus – Stock Options 167,000

Common Shares, 2,100,000 shares issued and outstanding 16,700,000

Additional Information – •

The convertible bonds were issued on December 31, 20x0. Bonds of similar risk yielded 5.6% at the time. The bonds mature on December 31, 20x15 and pay interest on Jun 30 and Dec 31. The face value of the bonds is $10,000,000. Each $1,000 bond is convertible into 40 common shares at the option of the holder.

• The net income for the year ended December 31, 20x4 is $3,400,000

• No preferred share dividend had been declared since December 31, 20x2. On December 31, 20x4, Green declared a total of $1,200,000 in dividends.

• The following common stock transactions took place in 20x4: March 30 – Repurchased 30,000 common shares June 30 – Issued 200,000 common shares

• The Series B preferred shares are convertible into 4 common shares at the option of the holder.

• There are two stock option grants outstanding: Series A107: 30,000 options at an exercise price of $15, Series A108: 50,000 options at an exercise price of $28

• On February 28, 20x3, Green purchased a subsidiary. One of the conditions of the purchase was the issue of an additional 50,000 common shares on February 28, 20x5 if the cumulative net income of the subsidiary post-acquisition was $1,000,000. This was met on October 31, 20x4. As of December 31, 20x4, the cumulative net income of the subsidiary was $1,300,000 and management believes that there will be no decrease in the cumulative net income of the subsidiary between December 31, 20x4 and February 28, 20x5. • The average stock price during the year was $25 • The tax rate is 25%

Required –

a. Calculate the Basic and Diluted EPS for the December 31, 20x4 year-end.

b. Assume now that the company declared a 2:1 stock split on April 15, 20x4. Calculate the weighted average number of common shares.