## FA Mod 7 Diluted EPS for convertible debt practice exam questions

 Author Message NEAS Supreme Being Group: Administrators Posts: 4.2K, Visits: 1.2K FA Module 7 Diluted EPS for convertible debt practice exam questions(The attached PDF file has better formatting.)In 20XX, the corporate tax rate is 10% and a firm has net income of 3,170. Its capital structure consists of ●    610 common shares outstanding●    6,120 (face value) of 6.40% convertible bonds, convertible into a total of 240 common sharesIn 20XX, the firm pays dividends of 4.15 per common share.Question 7.1: Net income available to common shareholdersWhat is the firm’s net income available to common shareholders?Answer 7.1: 3,170(Firm has not issued preferred shares, so no deduction)Question 7.2: Basic earnings per shareWhat is the firm’s basic earnings per share?Answer 7.2: 3,170 / 610 = 5.197(net income available to common shareholders / weighted average common shares outstanding)Question 7.3: Dividend payout ratio What is the firm’s dividend payout ratio?Answer 7.3: 4.15 / 5.197 = 79.85%(Dividends per share / earnings per share)Question 7.4: Earnings retention rateWhat is the firm’s earnings retention rate?Answer 7.4: 1 – 79.85% = 20.15%(earnings retention rate = complement of dividend payout ratio)Question 7.5: If-converted method numeratorWhat would net income be if the convertible debt had been converted at the beginning of the year?Answer 7.5: 3,170 + 6,120 × 6.40% × (1 – 10%) = 3,522.51(net income available to common shareholders + par value of convertible debt × coupon rate on convertible debt × (1 – tax rate) )Question 7.6: If-converted method denominatorWhat would the weighted average common shares outstanding be if the convertible debt had been converted at the beginning of the year?Answer 7.6: 610 + 240 = 850(weighted average common shares outstanding + shares from convertible debt)Question 7.7: Diluted earnings per shareWhat is the firm’s diluted earnings per share?Answer 7.7: 3,522.51 / 850 = 4.144 Attachments FA Module 7 Diluted EPS for convertible debt practice exam questions.pdf (162 views, 27.00 KB)
##### Merge Selected
Merge into selected topic...

Merge into merge target...

Merge into a specific topic ID...