Problem
On 1/1/06 karitas Inc., a calendar year company, has 875,000 common shares outstanding. Over the course of the fiscal year, the company experiences the following events:
Common stock related events:
3/1/2006 issues 153,125 common shares
5/1/2006 distributes a 10% stock dividend
8/1/2006 purchases 70,000 shares of treasury stock
10/1/2006 issues a 3 for 1 stock split
The firm also has the following securities outstanding for the entire year (all conversion rates already reflect the effect of the stock dividend and stock split): 50,000 shares of convertible preferred stock. The convertible preferred stock has a par value of $10 per share, pays a 18% dividend and is convertible into 2 shares of common stock.
Convertible bonds with an aggregate par value of $8,500,000. The bonds are sold in increments of $1000; pay a 8.5% coupon and are convertible into 100 shares of common stock.
175 call option contracts with a strike price of $10 per share. Each option contract is exercisable into 170 shares of common stock. The average stock price over the fiscal year is $20 per share.
The firm has net income of $5,900,000 and the corporate tax rate is 35%.
1) Calculate the weighted average number of shares outstanding at 12/31/06
2) Calculate basic EPS
3) Calculate whether each security in the firm's capital structure is dilutive
4) Calculate fully-diluted EPS.