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Hi Mike !
Sir, Could you give me a little help over here ! I’m missing the logic why they exclude 12% convertible bonds in the Diluted EPS calculations !Mike Co issued $ 1500 M of 7% convertible debentures, which can be convertible in 2 Yrs into 1 share of $ 5000 of the debenture amount.
Its also issued $ 4000 Million, 12% Convertibel bonds which are converted in 12months for 1 Share per $5000 Of debenture amount.
Mike Co has issued capital of 2,500,000 Shares of $ 5000 Each
Earning per period is $ 1,225 M after tax. Tax charges are at 42%.
calculate diluted EPS ?
they take $ 1225 M + (.58*$ 105M)=$ 1,285.9 M as Adjusted earnings
no of shares =2.5 M + 0.3 M=2.8 M
D Eps=$ 1285.9/2.8M= $ 460 Per share
Thanks in advance Sir
Check my calculations please!
4,000,000 / 5,000 = 800 potential extra shares
4,000,000 x 12% = 480,000
480,000 x .58 = 278,400 potential extra earnings
Marginal eps for the first debenture is 60,900 / 300 = 203
Marginal eps for the second debenture is 278,400 / 800 = 348
Adjusted for first conversion is as you have posted:
1,285,900 / 2,800 = 459.25
Adjusted for second conversion is:
1,564,300 / 3,600 = 434.53
In summary …… I don’t know why the second one has been ignored!
Check that you have written the question correctly in your post?
I’m sorry, i copied it wrong !
The second one, its converted into 1 Share for each $ 10,000 of the debenture amount. Instead of $ 5,000Sir, what is logic behind of not including anti dilutive potential ordinary shares ?
What i have understood on diluted EPS is, we calculate it so that to inform the users what will be the effect on Earning per share, IF the existing bonds/warrants will be converted to ordinary shares. Why now they ignore some and take others.
I’m not happy! :-((((((
The reasoning behind the non-inclusion of anti-dilutive conversions is because our global investor wants to know the WORST position (this is all explained in the lectures and course notes, I believe)
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