Calculate the Share Effect on the Incremental EPS for the Following

question 93

Multiple Choice

Calculate the share effect on the incremental EPS for the following instrument: $$\begin{array}{l}\begin{array} {| l | r |} \hline \text { Convertible bonds outstanding, yield of } 5 \% \text { and }\\\text { coupon rate of } 5 \% & \$ 2,000,000 \\\hline \text { Issue date } & \text { January } 1,2013 \\\hline \text { Maturity date } & \text { December } 31,2020 \\\hline \text { Conversion rate for each } \$ 1,000 \text { bond } & 40 \text { ordinary shares } \\\hline \text { Income tax rate } & 25 \% \\\hline\end{array}\end{array}$$

• A)0.63
• B)1.88
• C)75,000
• D)80,000

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Definitions:

Effective Annual Rate

A measure of the annual return on an investment, taking into account the effect of compounding interest.

Bonuses

Additional compensation given to employees as a reward for good performance, usually based on individual or company achievements.

Ordinary Annuities

A series of equal payments made at equal intervals, such as monthly or annually.

Annuities Due

An annuity for which the payment is due at the beginning of the period, as opposed to the end of the period.