Problem: EPS with Convertible Bonds
The Minnesota Vikings have 800,000 shares outstanding at December 31, 2012. On April 1, 2013, the Vikings issue an additional 600,000 shares of stock for cash. All 1,400,000 shares were outstanding on December 31, 2013. The Vikings also issued $600,000 of 20-year, 8% convertible bonds at part on July 1, 2013. Each $1,000 bond converts to 40 shares of common stock at any interest date. No bonds have been converted as of December 31, 2013. The Vikings are preparing their annual report for the year ended December 31, 2013 and will report after-tax net income of $1,540,000. The Vikings have a 40% tax rate.
a. What is basic EPS?
b. What is diluted EPS?