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Homework answers / question archive / Peyton plans to raise $1,000,000 million of additional capital for the coming year
Peyton plans to raise $1,000,000 million of additional capital for the coming year. They anticipate that it will enable them to earn an additional $600,000 after tax. What would be the impact on earnings per share if the raise the $1,000,000 by:
issuing 10,000 share of 10% $100 par value convertible preferred stock, where shares can be coverted into 10 shares of Peyton common stock?
How do you calculate EPS?
First we calculate Basic Earning per Share:
Earning per Share = (Net Income - Preferred Dividends)/Number of Common Shares Outstanding
= ($600,000-($1,000,000*10%))/100,000
= ($600,000-$100,000)/100,000
= $500,000/100,000
Earning per Share = $5
Note: Here We have assumed Number of Common Shares Outstanding are 100,000.
Earnings per Share if the raise the $1,000,000 by issuing 10,000 share of 10% $100 par value convertible preferred stock, where shares can be coverted into 10 shares of Peyton common stock:
Number of Existing Common Shares = 100,000
Additional Common Shares (10,000 preference shares*10 common shares) = 100,000
Total Common Shares after Conversion = 200,000
Earning per Share if Preferred Shares Converted (Diluted EPS) = $600,000/200,000 = $3 per share
