On January 1, 2007, UMB Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On August 1, the corporation declared and issued a 2-for-1 stock split. On November 1, the corporation purchased on the market 600,000 of its own outstanding shares. The tax rate is 40%.

Additional information: Net Income $3,100,000

The following three securities were issued prior to 2007.

10% Cumulative Convertible Preferred Stock Par value $1,000, 1,000 shares, convertible into 200,000 shares (in total, split adjusted) of common stock $1,000,000

Stock Options Exercisable at the option price of $20 per share. Average market price in 2007, $30 60,000 shares

8% Convertible Bonds Sold 2,000 bonds at par. Each $1,000 bond is convertible into 30 shares (split adjusted) of common stock.

$2,000,000

Required:

(a) Compute the weighted average shares outstanding during the year. (You already did this in

HW#1 Q3.)

(b) Compute the basic earnings per share for 2007. (Round to the nearest penny.) (Hint: You

have to do this again as the company issued convertible preferred stock this time unlike

HW#1 Q3.)

(c) Compute the diluted earnings per share for 2007. (Round to the nearest penny.) You have to

show the proper intermediate steps to get full credit. (Hint: Try to fill out the table below and rank them from the most dilutive to the least. Then, you add one by one based on your ranking and see which one is anti-dilutive.)

Security Effect on NI (a) Effect on Shares (b)

Convertible preferred Options Convertible bond

Effect on EPS Rank (=a/b)