Earnings Per Share Example

Consider the following information for Wichtel Corporation. Assume that the weighted average shares were 500,000 shares.

Preferred Stock:

5%, $100 par convertible cumulative preferred stock issued at par, convertible into 20,000 shares of common stock $200,000

6%, $100 non convertible cumulative preferred stock issued at $102; $300,000

Stock options 50,000 shares

Option Exercise Price $20 per share

Average market price $31

Year-end market price $28

Bonds:

8%, $1,000 par, issued at par, convertible into 16,000 shares of common stock $200,000

9%, $1,000 par, issued at par, convertible into 7,000 shares of common stock $100,000.

Net income for year is $400,000. The company's tax rate is 35%. No actual conversions occurred, and no options were exercised during the year.

Required:

1. Compute basic earnings per share

Basic EPS = ______________________________________________

2. Compute diluted earnings per share

Diluted EPS = _________________________________________________