The Olive Corporation reported net earnings of $1,900,000 and there were 750,000 common shares outstanding in 2020. In addition, Olive had the following items in its capital structure on December 31, 2020, the end of the fiscal year:

1. Call options (written) to purchase 400,000 common shares were outstanding for the entire period. The exercise price is $15 per share. The average common share price during the period was $30.
2. 3,000 (written) put options were outstanding at an exercise price of $40 for a common share. The average common share price during the period was $30.
3. $2 million par value of 9% debentures (unsecured debt), outstanding for the entire year. Debentures are convertible into 40 common shares for each $1000 bond.
4. Preferred shares, $5, cumulative, no-par, convertible into common shares at the rate of four shares of common for each preferred share. Five thousand shares were outstanding for the entire year. No dividends were declared in 2020 on these shares.

Required:

1. Calculate the basic eps for Olive in 2020. Round to the nearest cent. (3 marks)

Basic e.p.s__________________

2. Calculate the individual (incremental) effect for diluted EPS for each of the potentially dilutive securities. For options, determine the incremental shares outstanding, if any. If a security is not dilutive (i.e. anti-dilutive), state so and briefly explain why. The tax rate is 30%. (6 marks)

1. Incremental impact of call options:__________________

2. Incremental impact of put options________________

Question #2 (continued)

3. Incremental impact of 9% debentures:_______________

4. Incremental impact of preferred shares:____________________

3. Calculate the fully diluted EPS to be reported by Olive Corp. for 2020, starting with the most dilutive security. Round to the nearest cent.  ______________________________

Answer rating: 100% (QA)

Basic eps 1900000 750000 253 Incremental impact of call options 19... View the full answer