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TR20-2 Basic and Diluted EPS: Hominem Inc. has 100,000 common shares outstanding. Earnings from continuing...

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TR20-2 Basic and Diluted EPS: Hominem Inc. has 100,000 common shares outstanding. Earnings from continuing operations amounted to $1,500,000 (after tax) for the year ended 31 December 20X4. Hominem's income tax rate is 25%. The company had no discontinued operations. At the end of 20X4, the market price of the company's common shares was $27. Hominem had these additional components in its capital structure at the end of the year: 15,000 cumulative preferred shares outstanding since 20X2; each share is entitled to an annual dividend of $20 per share and is convertible into five shares of common after 30 June 20X9. 4% debentures amounting to $500,000 were issued on 1 January 20X4. On this issue date, the bonds were recorded at $425,000. The debentures are convertible into 12 shares per $1,000. On 1 January 20X4, similar bonds with no conversion options had a market yield of 6%. Interest is payable annually. . Outstanding options permitting the holder to buy 5,000 common shares in 20X6 or later for $35 per share. Required: 1. Compute basic EPS. 2. Compute diluted EPS, using a cascade if appropriate. Page 1446

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