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Thank you so much for your previous answers.I have now a question about DEPS, it would be nice if you help.
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A company had 8.28 million shares in issue at the start of the year and
made no new issue of shares during the year ended 31 December
20X4, but on that date it had in issue $2,300,000 convertible loan stock
20X620X9. The loan stock carries an effective rate of 10%. Assume an
income tax rate of 30%.The earnings for the year were $2,208,000.
This loan stock will be convertible into ordinary $1 shares as follows.
20X6 90 $1 shares for $100 nominal value loan stock
20X7 85 $1 shares for $100 nominal value loan stock
20X8 80 $1 shares for $100 nominal value loan stock
20X9 75 $1 shares for $100 nominal value loan stock
Calculate the fully DEPS for the year ended 31 December 20X4.Extra shares: 2 300 000 * 90/100
______________Could you please help me to understand, why this dillution is taken only for year 20×6 in the Solution?I just think, if company convert debt into sharesbin subsequent years , it has to count total conversion for years 20X6-20X9.
Thank you.
Hi,
Glad you’ve found the past answers useful.
When we are looking at the DEPS we are looking for the worst possible outcome from the issue of shares in the future. So in this example we use the conversion that would give the largest potential amount of shares in the future and here that is in 20X6. The year doesn’t matter, it is the number of shares that could be potentially issued that is the key.
Thanks
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