Grove Plc’s issued share capital is currently 8,000,000 ordinary shares of $0.50 each. On October 1, 2016 the company issued $4,000,000 worth of 12% convertible loan stocks. Each $500 nominal worth of loan stock is convertible over the next three years as follows:               On December 31, 2016                       350 shares             On December 31, 2017                       320 shares             On December 31, 2018                       300 shares   The following are the trading results for the years ended December 31:                                                                              2016                2017   Net Profit before interest and tax                   $6,400,000      $7,200,000 The applicable tax rate is 35%.   Required: Calculate the basic EPS for 2016 and 2017 Calculate the diluted EPS for 2016 and 2017    Explain briefly to a potential investor the significance of diluted EPS

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Grove Plc’s issued share capital is currently 8,000,000 ordinary shares of $0.50 each. On October 1, 2016 the company issued $4,000,000 worth of 12% convertible loan stocks. Each $500 nominal worth of loan stock is convertible over the next three years as follows:

 

            On December 31, 2016                       350 shares

            On December 31, 2017                       320 shares

            On December 31, 2018                       300 shares

 

The following are the trading results for the years ended December 31:

                                                                             2016                2017

 

Net Profit before interest and tax                   $6,400,000      $7,200,000

The applicable tax rate is 35%.

 

Required:

  1. Calculate the basic EPS for 2016 and 2017
  2. Calculate the diluted EPS for 2016 and 2017   

Explain briefly to a potential investor the significance of diluted EPS

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