Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6%
$3,500,000
Issue date
January 1, 2021
Maturity date
December 31, 2028
Conversion rate for each $1,000 bond
40 ordinary shares
Income tax rate
30%
A)1.05
B)1.88
C)40,000
D)3.15

Question

Quizplus · Accepted Answer

The incremental EPS is calculated by dividing the after-tax interest savings by the additional shares created from conversion. The interest savings is $3,500,000 * 6% * (1 - 0.30) = $147,000. The additional shares are 3,500 * 40 = 140,000. Incremental EPS = $147,000 / 140,000 = $1.05.

Calculate the Incremental EPS for the Following Instrument: Convertible Bonds