Calculate the Income Effect on the Incremental EPS for the Following

question 38

Multiple Choice

Calculate the income effect on the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6%
$2,000,000
Issue date
January 1, 2021
Maturity date
December 31, 2028
Conversion rate for each $1,000 bond
20 ordinary shares
Income tax rate
25%

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

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Definitions:

Goodwill

The intangible asset that arises when a company acquires another business for a price higher than the fair value of its net identifiable assets.

Business Combination

The process of joining two or more companies into a single entity, often to expand market share, diversify, or achieve other business objectives.

Outstanding Shares

The total number of shares of stock that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s insiders.

Copper Production

The process of extracting copper from its ores and converting it into pure metal for use in various industries, including electrical wiring, construction, and automotive.