Product Pond, Inc. had 42 million shares of common stock outstanding at the end of 2020. In addition, the company had previously issued 10 million stock options to its executives (exercise price of $2.00 per option). None of these options had been exercised as of year-end 2020. Net income for 2020 was $29.5 million, which already included the impact of compensation expense from the stock options. The current market price of Product Ponds stock is $20.00 per share.

Required:

[1] Calculate Product Ponds basic earnings per share (EPS) for 2020.

[2] Calculate Product Ponds diluted earnings per share (EPS) for 2020.

[3] Which EPS figure calculated above (basic or diluted) is larger? Explain in words why this is the case.

[4] Where would an investor or creditor go to find basic and diluted EPS in the financial statements?

[5] In earlier classes, we discussed companies raising capital by selling bonds. One type of bond we discussed was a convertible bond. If Product Pond also had convertible bonds outstanding, would they affect the calculation of either/both basic and/or diluted EPS? Why or why not?