Parent Sub

Internally generated income $420,000 $220,000

Weighted Average Common Shares 250,000 50,000

Preferred Shares Outstanding 9,000 ($50 par, 8%) 8,000 ($25 par, 6%)

Convertible Bonds Payable $400,000 $300,000

Warrants to acquire Parent common stock 25,000

1) The Parent owns 70% of the Sub

2) None of the Sub’s Preferred Shares are held by the Parent, none of the Parent’s Preferred Shares are owned by the Sub

3) The Parent’s preferred stock is convertible into 18,000 shares of common stock (I did the calculation for you), the Sub’s preferred stock is convertible into 2,000 shares of common

4) The Parent’s convertible Bonds Payable pay an interest rate of 7% and are convertible into a total of 12,000 shares of common stock. None of the Sub’s Bonds are held by the Parent.

5) The Sub’s convertible Bonds Payable pay an interest rate of 8% and are convertible into a total of 4,000 shares of common stock. None of the Parent’s Bonds are held by the Sub.

6) Tax rate for both companies is 30%

7) Each warrant entitles the holder to purchase one share of the Parent’s common stock. The warrants to acquire Parent’s stock were issued January 1st of this year, Exercise price is $40; the stock prices at the end of each quarter were $39 (1Q), $42 (2Q), $43 (3Q), and $49 (4Q).

Required: 

SHOW ALL CALCULATIONS. Carry all per share calculations out to six decimal places and then round all calculations to the nearest $.01. For warrants, carry out your initial calculation to four decimal places and then round to the nearest share.

1) Calculate Basic EPS for the Sub – circle all of your answers

2) Calculate Diluted EPS for the Sub a) Convertible Preferred Stock only b) Convertible Bonds only c) Both Convertible Preferred Stock and Convertible Bonds for Diluted EPS for Sub (show all of your calculations and circle your answer)

3) Calculate Basic Consolidated EPS

4) Calculate Diluted Consolidated EPS

a) Convertible Preferred Stock only

b) Convertible Bonds only

c) Both Convertible Preferred Stock and Convertible Bonds

d) Warrants

Your final, final, final answer here for Consolidated, Diluted EPS.