- 15 Marks
FR – L2 – Q62 – Financial Instruments
Calculate diluted EPS for Year 4 and comparative diluted EPS for Year 3 for a company with convertible bonds and share options.
Question
Kumasi Ventures Plc has had 5 million shares in issue for many years. Earnings for the year ended 31 December Year 4 were GH₵2,579,000. Earnings for the year ended 31 December Year 3 were GH₵1,979,000. Tax is at the rate of 30%.
Outstanding share options on 500,000 shares have also existed for a number of years. These can be exercised at a future date at a price of GH₵3 per share. The average market price of shares in Year 3 was GH₵4 and in Year 4 was GH₵5.
On 1 April Year 3 Kumasi Ventures Plc issued GH₵1,000,000 convertible 7% bonds. These are convertible into ordinary shares at the following rates:
On 31 December Year 6: 30 shares for every GH₵100 of bonds
On 31 December Year 7: 25 shares for every GH₵100 of bonds
On 31 December Year 8: 20 shares for every GH₵100 of bonds
Required:
Calculate the diluted EPS for Year 4 and the comparative diluted EPS for Year 3
Find Related Questions by Tags, levels, etc.
- Tags: Convertible bonds, Diluted EPS, Earnings per share, Financial instruments, Share options
- Level: Level 2
- Topic: Financial Instruments
