LASTEPS Co.had granted 20,000 options to buy one common share at $10 per share several years ago.The company earned $200,000 this year and had 300,000 common shares outstanding the entire year.The company earns interest at 8% and has a 40% tax rate.Given only the above information, what are basic EPS and diluted EPS respectively that should be reported? (Rounded to the nearest cent)

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Quizplus · Accepted Answer

Basic EPS is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. Here, it's $200,000 / 300,000 = $0.67. For diluted EPS, we consider the options. The 20,000 options at $10 would bring in $200,000 if exercised (20,000 * $10), which could then buy back shares at the current market price. However, without the market price, we can't directly calculate the impact of the options on diluted EPS. The correct choice must be a mistake because we can't accurately calculate diluted EPS with the given information. However, assuming a choice must be selected, and recognizing a typo in my explanation (I initially calculated basic EPS incorrectly), the correct approach for diluted EPS involves considering the treasury stock method or potential dilutive effects, which isn't directly calculable from the given data. Thus, the selection based on the provided options and recognizing an error in the calculation process or a misunderstanding in the explanation would lean towards acknowledging a mistake in the premise of calculating diluted EPS directly.