2. In 20x7 a company had a basic EPS of 105c based on earnings of $105,000 and 100, 000 ordinary $1 shares. It also had in issue $40,000 15% convertible loan stock which is convertible in two years' time at the rate of 4 ordinary shares for every $5 of stock. The rate of tax is 30%. 830 The company also has the following extracts from the financial statements of 20x8: Statement of profit or loss Statement of financial position $000 $000 Operating profit Ordinary shares 2,500 Finance costs _(15) Revaluation surplus 300 Profit before tax 815 Retained earnings 2. 200 Income tax (15) 5,000 Profit for the year 800 10% loan notes 1,500 Current liabilities Total equity and liabilities 6.600 At year end 20x8, the company has four million ordinary shares in issue and the market price per share is $1.50 100 Required: (1) Calculate the diluted EPS for 20x7 (55) (2) Calculate the return on capital employed and P/E ratio for 20x8