Pharoah Inc. has 0.90 million common shares outstanding as at January 1, 2020. On June 30, 2020, 4% convertible bonds were converted into 110,000 additional shares. Up to that point, the bonds had paid interest of $900,000 after tax. Net income for the year was $1,299,146. During the year, the company issued the following: 1. June 30: 14,430 call options giving holders the right to purchase shares of the company for $34 2. Sept. 30: 19,430 put options allowing holders to sell shares of the company for $29 On February 1, Pharoah also purchased in the open market 14,430 call options on its own shares, allowing it to purchase its own shares for $31. Assume the average market price for the shares during the year was $39. Assume further the following: 1. On September 30, 220,000 convertible preferred shares were redeemed. If they had been converted, these shares would have resulted in an additional 110,000 common shares being issued. The shares carried a dividend rate of $3 per share to be paid on September 30. No conversions have ever occurred. 2. There are 10,000 of $1,000, 9% convertible bonds outstanding with a conversion rate of three common shares for each bond starting January 1, 2021. Beginning January 1, 2024, the conversion rate is six common shares for each bond; and beginning January 1, 2028, it is nine common shares for each bond. The tax rate is 30%. (a1) Calculate weighted common shares outstanding.
Pharoah Inc. has 0.90 million common shares outstanding as at January 1, 2020. On June 30, 2020, 4% convertible bonds were converted into 110,000 additional shares. Up to that point, the bonds had paid interest of $900,000 after tax. Net income for the year was $1,299,146. During the year, the company issued the following:
| 1. | June 30: | 14,430 call options giving holders the right to purchase shares of the company for $34 | ||
| 2. | Sept. 30: | 19,430 put options allowing holders to sell shares of the company for $29 |
On February 1, Pharoah also purchased in the open market 14,430 call options on its own shares, allowing it to purchase its own shares for $31. Assume the average market price for the shares during the year was $39.
Assume further the following:
| 1. |
On September 30, 220,000 convertible |
|
| 2. |
There are 10,000 of $1,000, 9% convertible bonds outstanding with a conversion rate of three common shares for each bond starting January 1, 2021. Beginning January 1, 2024, the conversion rate is six common shares for each bond; and beginning January 1, 2028, it is nine common shares for each bond. The tax rate is 30%. |
(a1)
Calculate weighted common shares outstanding.
| Weighted common shares outstanding |
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