Kadri Corporation reported basic EPS of \($3.00\) and diluted EPS of \($2.40\) for 2008. Its EPS calculations follow:

It issued the convertible preferred stock at the beginning of 2008 and the Series A and Series B convertible debt at par in late 2007. No stock options were granted or exercised in 2008.
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 for 2008 was 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 2008?
On . Explain why Series A debt carries a lower interest rate than Series B debt although both were issued at par on the same day in 2007.

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EPS Calculation for 2008 Numerator Denominator Net income $3,500,000 Less dividend on 10% convertible preferred stock (500,000) Weighted-average common shares outstanding Basic EPS = $3.00 1,000,000 $3,000,000 1,000,000 Stock option dilution 33,334 Series A convertible debt dilution 240,000 250,000 Series B convertible debt dilution 300,000 200,000 10% Convertible preferred stock dilution 500,000 200,000 Diluted EPS = $2.40 $4,040,000 1,683,334