Terrell Foods Reported $870,000 in Net Income and Its Weighted

question 13

Multiple Choice

Terrell Foods reported $870,000 in net income and its weighted average shares outstanding for the year is 200,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding. The bonds are convertible into 10,000 shares of common stock. The tax rate for all years is 40%. If Terrell has no other potentially dilutive securities and no preferred stock, and no conversions occur during the year, what are basic and diluted EPS? (Round your final answers to the nearest cent.)

• A) basic EPS $4.35; diluted EPS $4.49
• B) basic EPS $4.14; diluted EPS $4.49
• C) basic EPS $4.35; diluted EPS $4.71
• D) basic EPS $4.14; diluted EPS $4.71

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Definitions:

Renovation Cost

The total expenses incurred during the process of improving or updating a property.

Initial Investments

Capital outlay at the start of a project, including costs for acquiring assets, setup, and other expenses necessary for the beginning of operations.

After-Tax Discount Rate

The discount rate used in investment appraisal and financial analysis that takes into account the effect of taxes on the rate of return.

Income Tax Rate

The percentage at which income is taxed by the government, varying across income levels and jurisdictions.