Calculate the Incremental EPS for the Following Instrument: Convertible Bonds

question 25

Multiple Choice

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 5% and coupon rate of 5%
$2,000,000
Issue date
January 1, 2019
Maturity date
December 31, 2024
Conversion rate for each $1,000 bond
20 ordinary shares
Tax rate
25%

• A)0.63
• B)1.88
• C)40,000
• D)75,000

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Definitions:

Profit Maximizing

The process of making business decisions that result in the highest possible profit, by adjusting production levels, prices, and other variables.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in market balance.

Profit

The financial gain that results when the revenues generated from business activities exceed the expenses, taxes, and costs incurred.

Competitive Market

A market structure characterized by many buyers and sellers, where all entities have little to no power to influence prices or market conditions.