Convertible Bonds and EPS
Response to the following problem:
Clark Company's capital structure consists of common stock and convertible bonds. At the beginning of 2010 the company had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of $80,000 and were issued in 2007 at par. Each $1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2010, the company earned net income of $79,200 and was subject to an income tax rate of 30%.
Required:
Compute the 2010 diluted earnings per share.