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Question 1: Diluted EPS - SHOW ALL CALCULATIONS (18 marks) Lalia Incorporated reported after tax profits of $6,500,000 in 2017. Selected information on Lalia's capital structure is as follows at December 31, 2017, the end of its fiscal year: Long Term Debt: Bonds Payable, 9%, $10,000,000 par value, due 2027, convertible into common shares at a rate of two common shares for each $100 bond; interest expense on the bonds for the entire year was $900,000 Shareholders' Equity Preferred Shares, $4.48, cumulative, convertible into common shares at a rate of two common shares for each preferred share, 150,000 outstanding Preferred Shares, $2.50, cumulative, convertible into common shares at a rate of one common share for each preferred share, 400,000 outstanding Common Shares oustanding, 1,500,000 100,000 options to purchase common shares (options have been oustanding all year); exercise price, $20; options expire 2023; each option allows the purchase of one common share TRANSACTIONS DURING 2017: a) On July 1, 2017, 400,000 common shares were issued on the conversion of 200,000 of the $4.48 preferred shares. b) On December 1, 2017, 100,000 common shares were issued for cash. OTHER INFORMATION: a) Average common share market price during the year $40 per share b) Tax rate: 20% c) Quarterly dividends were declared on March 31, June 30, September 30, and December 31 TRANSACTIONS DURING 2017: a) On July 1, 2017, 400,000 common shares were issued on the conversion of 200,000 of the $4.48 preferred shares. b) On December 1, 2017, 100,000 common shares were issued for cash. OTHER INFORMATION: a) Average common share market price during the year $40 per share b) Tax rate: 20% c) Quarterly dividends were declared on March 31, June 30, September 30, and December 31 I d) Common shares outstanding at January 1, 2017 were 1,000,000 Required: ROUND ALL DOLLAR AMOUNTS TO 2 DECIMAL PLACES a) Calculate basic EPS for the 2017 year. (6 marks) b) Test each security for dilution and identify each as dilutive or anti-dilutive. If options are dilutive, show the calculation of new shares issued. SHOW ALL CALCULATIONS. (8 marks) c) Prepare a cascade worksheet to show the calculation of diluted EPS, beginning with basic EPS. (4 marks)