Mirrlees Corp. has $3,000,000 bonds convertible into 50 shares per $1,000 bond. Mirrlees has 1,000,000 outstanding shares. Mirrlees has a tax rate of 21%. The average Aa bond yield at the time of issue was 10%. Compute the "diluted earnings per share" if after-tax earnings are $1,400,000.
A) $1.42
B) $1.25
C) $1.33
D) $1.17

Question

Quizplus · Accepted Answer

After-tax earnings of ($1,400,000+ $3,000,000*0.10*(1-0.21)) / (1,000,000+ ($3,000,000/$1,000)*50) shares = $1.42 diluted earnings per share