Calculate the Income Effect on the Incremental EPS for the Following

question 29

Multiple Choice

Calculate the income effect on the incremental EPS for the following instrument: $$\begin{array}{l}\begin{array} { |l | r| } \hline \text { Convertible bonds outstanding, yield of } 6 \% \text { and }\\\text { Ioupon rate of } 6 \% & \$ 2,000,000 \\\hline \text { Issue date } & \text { January } 1,2015 \\\hline \text { Maturity date } & \text { December } 31,2018 \\\hline \text { Conversion rate for each } \$ 1,000 \text { bond } & \text { 20 ordinary shares } \\\hline \text { Income tax rate } & 25 \% \\\hline\end{array}\end{array}$$

• A)0.75
• B)2.25
• C)40,000
• D)90,000

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Definitions:

Mammoth

A large, extinct species of the elephant, known for its long curved tusks and considerable size, that lived during the Pleistocene epoch.

Hunter

A person who pursues and kills wild animals for food or sport.

Extinct Species

Species that no longer exist anywhere on Earth, often due to natural causes or human activities.

Ice Age

A period of long-term reduction in the temperature of Earth's surface and atmosphere, leading to the presence or expansion of continental and polar ice sheets and alpine glaciers.