Kadri Corporation reported basic EPS of $3.00 and diluted EPS of $2.40 for 2014. Its EPS calculations follow:

Kadri issued the convertible preferred stock at the beginning of 2014 and the Series A and Series B convertible debt at par in late 2013. No stock options were granted or exercised in 2014.

Required:
1. The convertible preferred stock has a $100 par value per share. How many preferred shares were issued, and what was the common stock conversion rate for each preferred share?
2. The Series B convertible debt pays interest at 10% annually, and Kadri€™s marginal income tax rate is 40%. How much Series B debt was outstanding, and what is the common stock conversion rate for each $1,000 face Series B bond?
3. What are the interest rate and common stock conversion rate for the $5 million par of Series A debt?
4. During the year, 50,000 shares were under option, and the average exercise price was $20 per share. What was the average market price of the company€™s common stock during 2014?
5. Explain why Series A debt carries a lower interest rate than Series B debt although both were issued at par on the same day in2013.

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EPS Calculation for 2014 Numerator Denominator Net income Less dividend on 10% convertible preferred stock Weighted-average common shares outstanding $3,500,000 (500,000) 1,000,000 1,000,000 Basic EPS $3.00 $3,000,000 Stock option dilution Series A convertible debt dilution Series B convertible debt dilution 10% Convertible preferred stock dilution 240,000 300,000 500,000 $4,040,000 33,334 250,000 200,000 200,000 1,683,334 Diluted EPS $2.40