Question

2. HHQ1 LLC has projected a net income of $1 million USD in 2020. HHQ1 pays $100,000 total dividends to its 100,000 common shareholders outstanding @ the end of 2019 (Jan 01: 80,000 shares outstanding: July 01: 20,000 new shares were issued). The company also has 10,000 convertible preferred stocks ($5 dividend per P.S) and 2000 convertible bonds (10% coupon rate @$1000 par value). In 2020, 80% of the preferred stock holders may convert to common stocks (3 Common shares per preferred share). Also, 100% bondholders are allowed to convert to 2 common shares per bond. Tax rate 40%. Calculate both the basic and diluted EPS for HHQ1 3. A company has a profit margin of 8.8%, total asset turnover of 3.7, assets of $88,000 and liabilities of $25,000. How would the ROE change if profit margin increases to 9.5%, sales decrease by 5% and all balance sheet items stay the same? 4. Lets play communications paid 50,000 USD worth of cash dividends and retained 220,000 USD from their net income in FY 2018. Their total equity at the end of FY 2017 was 330,000 and the end of FY 18 the total equity balance was including some other gains/surplus 585,000 USD. What is their comprehensive income, if any? 5. We'll not play LLC had 1,000,000 average shares outstanding during all of 2017. During 2017, WNP also had 20,000 options outstanding with exercise prices of $45 each. The average stock price of WNP during 2016 was $42 and during 2017 increased 19.05% from '16. For purposes of computing diluted earnings per share, how many shares would be used in the denominator in 2017? What is the basic EPS if reported net income is 1,250,000 in 2017?

Answer 1

Answer to Question No : 2
Particulars	Basic EPS	Diluted EPS
Net Income	1,000,000.00	1,000,000.00
Less:
Preferred Dividend
(10,000 x 5)	(50,000.00)
(10,000 x 5)x20%		(10,000.00)
Add:
After tax cost in Interest
(2,000x 1,000x 10%x 60%)		120,000.00
Earning Available for Equity Share Holders (Numerator)	950,000.00	1,110,000.00
Weighted average number of common shares outstanding	90,000	90,000
Additional shares issued if preferred shares converted	-	24,000
Additional shares issued if debt converted		4,000
Total Outstanding Shares	90,000	118,000
EPS/ Diluted EPS	10.56	9.41
Weighted Average Shares Outstanding in this case = (80000*6 + 100000*6)/12 = 1080000/12 = 90000

Answer to Question No: 3	Amount ($)
a	Total Assets	88,000.00
b	Total Liabilities	25,000.00
c	Net Worth ( Total Assets - Total Out Side Liabilities)	63,000.00
d	Assets Turnover Ratio	3.70
e	Net Sales ( Assets Turnover Ratio x Total Assets)	325,600.00
f	Profit Margin ( 8.8%)	28,652.80
g	ROE ( Profit / Net Worth)	45.48%
h	Net Adjusted Sales
	( Net Sales x 95%)	309,320.00
i	Adjusted Profit Margin ( 9.5%)	29,385.40
n	Adjusted ROE (Adjustes Profit / Net Worth)	46.64%
o	Change in ROE (n-g)	1.16%

Answer to Question No: 4.
a	Closing Equity ( Including Retained Earning )	585,000.00
b	Opening Equity (FY 2018)	333,000.00
c	Change in Equity	252,000.00
	Add: Dividend Paid	50,000.00
d	Net Comprehensive Earning	302,000.00

Answer to Question No: 5 a Net Income (2017) 1,250,000.00 b Average Shares Outstanding (2017) 1,000,000.00 c Current Share Price (2016)                42.00 d Current Share Price (2017)                50.00 (Share Price Increase by 19.05% in 2017) e Options Outstanding (2017)        20,000.00 f Exercise Price                45.00 g. Amount Paid at Exercise Price      900,000.00 (e x f) h Value of option in current shares (Diluted Shares)        18,000.00 (g x d) i Diluted earning per shar ( a / (b+h)                  1.23