Jamie’s Golf Ltd.’s net income for the year ended December 31, 2021, was $900,000. Jamie had 100,000 ordinary shares outstanding at the beginning of the year. Jamie declared and distributed a 10% stock dividend on June 1, 2021, and issued (sold) 10,000 ordinary shares on October 1, 2021. Select details of Jamie’s liabilities and equities follow: 

■ Bonds A—$500,000, 4%, 12-year, semi-annual bonds issued on July 1, 2020. At the option of the holder, each $1,000 bond can be converted into 10 ordinary shares at any time before expiry. 

■ Bonds B—$500,000, 3%, semi-annual bonds maturing September 30, 2028. At the option of the holder, each $1,000 bond can be converted into 12 ordinary shares at any time before expiry. 

■ 100,000 convertible, cumulative preferred shares that are each entitled to dividends of $3 per annum. Dividends were not declared in 2020. Dividends of $600,000 were declared and paid in 2021. At the option of the holder, each preferred share can be converted into one ordinary share at any time between January 1, 2026, and December 31, 2031. 

■ Jamie’s corporate tax rate was 30%. The recorded conversion factor for the convertible bonds has already been adjusted for the stock dividend. 

Required:

Assuming that the effective rate of interest on the bonds equals the coupon rate: 

a. Calculate Jamie’s basic earnings per share for 2021. 

b. Prepare a schedule that sets out the income effect, share effect, and incremental EPS for each security that is convertible into ordinary shares. Rank the potential ordinary shares by their dilutiveness.

c. Calculate Jamie’s diluted earnings per share for 2021. 

d. Based on your answer to part (a), what would the price–earnings ratio be if the market price of the stock were $60?