Problem 5: Earnings per Share (10 points)
ABC Company had 3 million shares of common stock outstanding for the entire year. The company reported net income of $8 million. ABC has a tax rate of 40%. The average stock price for the company during the year was $12. No dividends were declared or paid during the year. The company had the following potentially dilutive securities outstanding for the entire year.
a. 10,000 bonds , $1,000 par, 8% coupon bonds issued at face value during the prior year. The bonds pay interest annually every December 31. Each bond can be converted into 24 shares of common stock.
b. 200,000 shares of $10 par value cumulative preferred stock issued at par with a dividend rate of 7%. Each share of preferred stock can be converted into one share of common stock.
c. 100,000 stock options that can be exercised in two years. Each option can be exercised for one share of common stock for $15 share.
Questions:
1) Determine the basic earnings per share for the year.
	Basic EPS =
2) Determine the per share effects of the potentially dilutive securities, placing them in order from the most dilutive effect to the least dilutive
3) Determine the diluted earnings per share for the year
	Diluted EPS =