Two Different Companies Have Many Similarities,including the Following

question 61

Essay

Two different companies have many similarities,including the following:
• They all earned net income of $3,500,000 for the year ended December 31,2017;
• They are all subject to a 35% tax rate;
• The average price of the companies' ordinary shares during the year was $26; and
• Each company had 1,400,000 ordinary shares outstanding during the year.
They do have slightly different complex capital structures,however.Specifically:
• Company Black had stock options outstanding the entire year that allowed employees to buy 10,000 ordinary shares for $22 each between January 1,2018 and December 31,2019.
• Company Clark had $4,000,000 in 4% non-cumulative preferred shares outstanding the entire year.Each $100 share is convertible into three ordinary shares.Dividends were not declared in 2017.
Requirements:
a.Calculate the basic EPS of the four companies.
b.Prepare a schedule that sets out the income effect,share effect,and incremental EPS for each company's security that is convertible into ordinary shares.
c.Consider each company's POS and determine whether it is dilutive or anti-dilutive.

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Definitions:

Competitive Bidding

A procurement process where various suppliers submit bids to win a contract to provide goods or services, often focusing on offering the best value.

Environmental Risk

The potential for environmental damage or harm due to industrial operations, natural disasters, or human activities.

Raw Material Availability

The extent to which the necessary inputs for production processes are accessible or can be procured within the required timeframe.

Backward Integration

A business strategy where a company expands its role to fulfill tasks formerly completed by businesses up the supply chain, gaining control over suppliers or production.