Question
Bloodhound Corp. provides the following data for calendar 2020 Net Income........................................................................................ $ 2,400,000 Transactions in Common Shares Jan 1 beginning Mar 1 purchase of treasury
Bloodhound Corp. provides the following data for calendar 2020 Net Income........................................................................................ $ 2,400,000
Transactions in Common Shares Jan 1 beginning Mar 1 purchase of treasury shares Jun 1 shares split 2 for 1
Nov 1 issuance of new shares
Change
(60,000) 940,000 120,000
Cumulative shares outstanding 1,000,000
940,000 1,880,000 2,000,000
8% Cumulative Convertible Preferred Shares
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$80,000 annual preferred dividend
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Convertible into 200,000 common shares ( already adjusted for stock split)
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The preferred shares were issued in 2019
Stock Options
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- Exercisable at the option price of $ 25 per share.
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- Average market price in 2020 was $ 30
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- 60,000 stock options (already adjusted for split)
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- The options are fully vested and can be exercised at any time
Instructions
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a) Calculate basic earnings per share for 2020. (4 marks)
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b) Calculate diluted earnings per share for 2020. (4 marks)
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c) Calculate the price to earnings ratio (PE ratio) using the basic EPS calculated in a above (1 mark) if the market price per share is $30
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d) Great Dane Corp. has a market price per share of $40 and a PE ratio of 12.5 Using the PE ratio calculated in c above, what company offers the better value for shareholders if the companies are very similar and equally competitive both now and in the future? Provide a brief explanation. (1 mark)
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