Question 3

The following information is available relating to the capital structure of Superior Dairy Inc.(fiscal year end December 31) as of December 31, 2018:

Bonds payable, due 2029, 4%, $1000 face value, $60 million

-each bond is convertible into 14 common shares

Common shares- 60 million issued and outstanding $330 million

Preferred shares, 5% dividend, cumulative, $100 par value $500 million

-each preferred share is convertible into 3 common shares

Other information is as follows:

-The income tax rate is 40%;

-On March 1, 2019, Superior purchased and retired 4 million common shares.

-On September 13, 2018 call options were issued and are exercisable for 5 million common shares at a price of $56 per share. During 2019 common shares averaged $70 per share, and peaked on December 31, 2019 at $80. All were outstanding as of year-end.

-On July 1, 2019, put options were granted as compensation to executives. These put options are exercisable for 3.2 million common shares with an exercise price of $80. All were outstanding as of year-end.

-On October 1, 2019, $20 million of the convertible bonds were converted into common shares, and interest on them was paid up to that date.

-Net income for 2019 was $150 million from continuing operations, and a loss of $25 million from discontinued operations.

Required :

(1) Compute Superior`s basic and diluted EPS for the year ended December 31, 2019.