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

• $80,000 annual preferred dividend

• Convertible into 200,000 common shares ( already adjusted for stock split)

• The preferred shares were issued in 2019

  Stock Options

• - Exercisable at the option price of $ 25 per share.

• - Average market price in 2020 was $ 30

• - 60,000 stock options (already adjusted for split)

• - The options are fully vested and can be exercised at any time

  Instructions

1. a) Calculate basic earnings per share for 2020. (4 marks)

2. b) Calculate diluted earnings per share for 2020. (4 marks)

3. 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

4. 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)