1. Markus Smart Ltd. (MSL) has a December 31, 2021 year end and recorded net income of $2,600,000 for the year. Throughout 2021 there were 260,000 common shares outstanding. These common shares had an average market price of $40 for the entire year. MSL has a tax rate of 25%.

MSL had the following potential common shares outstanding during 2021:

• 5% convertible bonds with a principal amount of $10,000,000, issued at par. Each $1,000 bond is convertible into 30 shares.
• 65,000 convertible preferred shares entitled to a cumulative dividend of $8 per share. Each preferred share is convertible into 2 common shares. No dividends were declared in 2021.
• Options to buy 50,000 common shares at $35.

Required (18 marks): For the year ended December 31, 2021, calculate the following for MSL (ignore the requirement to record debt and equity components separately)

1. Basic EPS

Diluted EPS