Question 3

XYZ Ltd. had 4,500,000 average shares outstanding during all of 2020. During 2020, XYZ also had 75,000 options outstanding with exercise prices of $12 each. The average stock price of XYZ during 2020 was $25. This company also had 1,200 shares of preferred stock outstanding (10%, $100 par value) for the entire year, which are each convertible into 20 shares of common stock. XYZ had $3,200,000 net income for the year. Corporate tax rate is 30%.

1. What is the basic EPS share for 2020? [1 Mark]
2. For purposes of computing diluted earnings per share, how many

shares would be used in the denominator? [3 Marks]

3. What is the diluted EPS for 2020? [1 Mark]