Answer:
The basic earning per share are $4.75
The diluted earnings per share are $4.66
Explanation:
In order to calculate the basic earning per share we have to make the following calcuation:
basic earnings per share = $9,500,000 / $2,000,000 = $4.75
The basic earning per share are $4.75
In order to calculate the diluted earnings per share we have to calculate first the following:
maturity value = $5,000,000 * 7% = $350,000 interest
discount amortization [ ( 1 -.0.98) * $5,000,000 *1/10] = $10,000
interest expense = $350,000 + $10,000 = $360,000
1 -tax rate 35% = $360,000 *65% = $234,000
$ 234,000 + $9,500,000 = $9,734,000
debentures = $5,000,000 / $1,000 = $5,000
$5,000 * 18 = $90,000
Therefore, diluted earning pershare = $9,734,000 / ( $2,000,000 + $90,000) =$4.66
The diluted earnings per share are $4.66