Information from the financial statements of henderson-niles industries included the following at december 31, 2018: common shares outstanding throughout the year: 100 million convertible preferred shares (convertible into 10 million shares of common): 30 million convertible 10% bonds (convertible into 17.0 million shares of common): $ 2,200 million henderson-niles’s net income for the year ended december 31, 2018, is $840 million. the income tax rate is 40%. henderson-niles paid dividends of $2 per share on its preferred stock during 2018. required: compute basic and diluted earnings per share for the year ended december 31, 2018. (enter your answers in millions (i. e., 10,000,000 should be entered as

The basic and diluted earnings per share for the year ended December 31, 2018 are $ 0.24 / Share and $8.89 /share respectively.

Explanation:

BASIC EPS CALCULATION

The preferred dividend = 30 million x $ 2/share

                                        = 60 Million

Basic EPS = ( Net income - preferred dividends ) / weighted average common shares

                 = ($840 million - $ 60 Million ) / 100   million

                 = $ 0.24 / Share

DILUTED EPS CALCULATION

After-tax bond interest expense    =   $ 2.200 million x 10%

                                                         = $ 220 Million

$ 220 Million x (100 + 40%) = $ 308 Million after-tax interest expense.

Shares assume converted to common

Common Shares = 100 Million            

Preferred stock = 40 Million

Convertible bonds   = 17.0 Million

Total = 157 Million shares outstanding  

Diluted EPS   = ( $ 840 Million - $60 Million  + $308 Million+ $ 66 Million ) / 157 million  

                       = $8.89 /share

Therefore, The basic and diluted earnings per share for the year ended December 31, 2018 are $ 0.24 / Share and $8.89 /share respectively.

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