Four different companies have many similarities, including the following: 

1. They all earned net income of $1,000,000 for the year ended December 31, 2021. 

2. They are all subject to a 40% tax rate. 

3. The average price of all four companies’ ordinary shares during the year was $25. 

4. Each company had 600,000 ordinary shares outstanding during the year. 

They do have slightly different complex capital structures, however. Specifically: 

■ Company A had stock options outstanding the entire year that allowed employees to buy 20,000 ordinary shares for $20 each until December 31, 2023. 

■ Company B had stock options outstanding the entire year that allowed employees to buy 10,000 ordinary shares for $26 each between January 1, 2022, and December 31, 2023. 

■ Company C had $1,000,000 in 5% bonds maturing on December 31, 2023, that were outstanding the entire year. Each $1,000 bond is convertible into 20 ordinary shares anytime before expiry. 

■ Company D had $800,000 in 4%, non-cumulative preferred shares outstanding the entire year. Each $100 share is convertible into two ordinary shares. Dividends were declared and paid in 2021. 

Required:

a. Calculate the basic EPS of the four companies. 

b. Prepare a schedule that sets out the income effect, share effect, and incremental EPS for each company’s security that is convertible into ordinary shares. 

c. Consider each company’s potential ordinary shares and determine whether it is dilutive or antidilutive. For Company C assume that the effective rate of interest on the bonds equals the coupon rate.