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[archived_user]

Selected information from Caledonia, Inc.’s financial activities in the year 20X6 is as follows:
Net income = $460,000.
2,300,000 shares of common stock were outstanding on January 1.
The average market price per share was $2 and the year-end stock price was $1.50.
1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1. Preferred dividends were paid in 20X6.
10,000 warrants, each of which allows the holder to purchase 100 shares of common stock at an exercise price of $1.50 per common share, were outstanding the entire year.
Caledonia’s diluted earnings per share for 20X6 are closest to:
A) $0.15.

B) $0.165.

C) $0.180.

 

[archived_user]

Number of share: 2,300,000 + 1,000,000 (those exercised) - 750,000 (those purchased to treasury with those proceeds) = 2,550,000
Net Income = 460000 - 80,000 (pref div)
= 380
380/2550 = 0.15

 

[archived_user]

Number of options to be exercised =
(2 - 1.5)/2 * 100 * 10000 = 250,000
Number of shares outstanding throughout the year = 2,300,000 + 250,000 = 2,550,000
NI - pref div = 460,000 - 80,000 = 380,000
EPS = 380,000/2,550,000 = 0.15