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Q1) A company has 200,000 common shares outstanding throughout 2012. On December 31, 2012, the company reported $500,000 in net income. Additional information is as follows:

The company has 1,000 shares of 7% nonconvertible preferred stock. The par value of each share is $100. All preferred dividend distributions are up to date (all have been declared, none are in arrears).

The company has 5,000 shares of 5% convertible preferred stock. The par value of each share is $100. Each preferred stock share can be converted to 5 shares of common stock. All preferred dividend distributions are up to date (all have been declared, none are in arrears).

Calculate the following $ amounts:

Annual preferred dividends on 7% nonconvertible preferred stock: _______________

Annual preferred dividends on 5% convertible preferred stock: _______________

Basic earnings per share: _______________

Q2) A company has 100 employees who currently hold 1,000 stock options each. The exercise price is $25 per share. The options are currently in the money.

Calculate the maximum proceeds that the Company can receive from exercised stock options. In other words, assume that all stock options are exercised at the same point in time. Maximum $ proceeds from exercised stock options: _____________________

Q3) A company has 3,000 convertible bonds (each has a face value of $1,000) that were issued at par with a coupon rate of 6% annual interest. Each bond can be converted to 20 shares of common stock. Assume a 30% income tax rate.

Calculate the following amounts:

Pre-tax annual interest expense ($): ______________________

After-tax annual interest expense ($): ________________________

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