- 8 Marks
FM – L2 – Q31 – Sources of finance: debt
Calculate the change in EPS if convertible bonds are converted into equity shares for a company with given financial data.
Question
A company has the following equity shares and bonds in issue:
2,000,000 equity shares of GH¢0.50 each.
GH¢1,000,000 of 4% convertible bonds.
The current earnings per share (EPS) is GH¢0.25.
The rate of tax is 30%.
The convertible bonds are convertible into equity shares at the rate of 40 shares for every GH¢100 of bonds.
Required
On the basis of this information, calculate the expected change in EPS if all the bonds are converted into equity shares.
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