Question: Online Network, Inc., has net income of $600,000 in the current fiscal year. There are 100,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $1.4 million. The $1.4 million is represented by 1,400 different $1,000 bonds. Each $1,000 bond pays 5 percent interest. The conversion ratio is 20. The firm is in a 30 percent tax bracket.
a. Calculate basic earnings per share.
b. Calculate diluted earnings per share.