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Exercise 1

For the year ended December 31 2016, Livingston Company had 2,600,000 shares of common stock, and 500,000 shares
preferred stock that pays a $0.5 dividend per share each year. The company had income for the year on $4´865,00
Compute the EPS and the Diluted EPS for Livingston during 2016. Each preferred stock is convertible into 2 shares
common stock.

Exercise 2.

Camden Industries has 2´600,000 shares of common stock and during 2016 had net income of $1´290,000. Camden also h
500,000 shares of preferred stock, each convertible into 1 share of common stock, and pays dividends of $0.50 per shar
Compute the EPS and the diluted EPS for 2016.

Exercise 3.

Islander Manufacturing had 2´600,000 outstanding shares during 2016 and 500,000 shares of preferred stock, eac
convertible at a ratio of 1 (preferred) to 5 (common). The preferred stock pays a dividend of 1.00 per share each year. Durin
the 2016 period Islander produced a net income of $7´650,000. Compute the EPS and the diluted EPS for 2016.
Each preferred stock is
shares of Shares of preferred company´s
Pays UPA convertible into 2 shares of
common stock stock income common stock.

2,600,000 500,000 0.5 4,865,000 1.78 2

Each preferred stock is


shares of Shares of preferred company´s
Pays UPA convertible into 2 shares of
common stock stock income common stock.

2,600,000 500,000 0.5 1,290,000 0.40 1

Each preferred stock is


shares of Shares of preferred company´s
common stock stock Pays income UPA convertible into 2 shares of
common stock.

2,600,000 500,000 1 7,650,000 2.75 5


UPA DILUIDA

1.35

UPA
UPA DILUIDA DILUIDA
FINAL

0.42 0.40

UPA
UPA DILUIDA DILUIDA
FINAL

1.50 1.50

3000
Exercise 4.

EMC Cloud Computing made a number of transactions over the 2016 related to their equity. The outstanding shares at
the start of the year were 1´000,000 common and 125,000 preferred. At the end of March the company purchased
some treasury stock, 100,000 shares. In November 1 the company issued 1´000,000 shares of common stock. At the
end of the year all preferred stockholders may convert their shares at a 1 (preferred) to 4 (common) ratio.

The net income for the year was $5´100,000 and the dividends paid to preferred shareholders were $400,000.
Compute the EPS and the diluted EPS for 2016.

Example 5.

Trinity Company reported net income of $750,000 for the year 2016. The company had an average of 300,000 shares of
common stock outstanding and 25,000 preferred shares convertible at a rate of 1 preferred per 2 common. In addition,
the company has another potentially dilutive security: $50,000 of 6% convertible bonds, convertible into a total of
50,000 shares. The preferred stock pays a dividend of $2 per share. Assuming a tax rate of 30%, calculate Trinity´s basic
and diluted EPS.

Exercise 6.

From the previous exercise, how much would be the diluted EPS if only the preferred were diluted and also compute
the diluted EPS only if the bond were diluted.
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Weighted
shares of Shares of
shares of common Treasury shares of common shares of
common stock preferred
stock January stock stock November common
Abril stock
stock

1,000,000 -100,000 900,000 1,900,000 1,091,667 125,000


3,000,000.00 6,300,000.00 3,800,000.00

Each
preferred
stock is
Shares of
Weighted shares of preferred convertible
Pays company´s income UPA
common stock into 2
stock shares of
common
stock.

300000 25000 2 750000 2.33333333 2

1.021 118%
1.209
1.087 106%

€ 110.51 5000
Each
preferred
stock is
Price Shares of preferred company´s convertible UPA
Pays UPA
stocks income into 4 DILUIDA
shares of
common
stock.

400,000 1 5,100,000 4.31 4 3.20

Dilutive Security

Convertible Dilutive UPA


Convertible shares Rate Tax Rate
bond Security DILUIDA

50000 0.06 3000 0.3 2100 1.88025


UPA
DILUIDA
FINAL

3.20