The financial data below should be used to answer the following two questions.

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