Mirrlees Corp. has 10,000 7% bonds convertible into 30 shares per $1000 bond. Mirrlees has 1,000,000 outstanding shares. Mirrlees has a tax rate of 40%. The average Aa bond yield at time of issue was 10%. Compute basic earnings per share if after-tax earnings are $1,400,000.
A) $0.71
B) $1.25
C) $1.33
D) $1.40

Question

Quizplus · Accepted Answer

Basic earnings per share (EPS) is calculated by dividing after-tax earnings by the number of outstanding shares. Here, $1,400,000 / 1,000,000 shares = $1.40.