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XFX Corp. provides the following data for calendar 2020

Net Income ........................................................................................ $ 2,400,000

Transactions in Common Shares Change Cumulative shares outstanding

Jan 1 beginning 1,000,000

Mar 1 purchase of treasury shares (60,000) 940,000

Jun 1 shares split 2 for 1 940,000 1,880,000

Nov 1 issuance of new shares 120,000 2,000,000

8% Cumulative Convertible Preferred Shares

$80,000 annual preferred dividend

Convertible into 200,000 common shares ( already adjusted for stock split)

The preferred shares were issued in 2019

Stock Options

- Exercisable at the option price of $ 25 per share.

- Average market price in 2020 was $ 30

- 60,000 stock options (already adjusted for split)

- The options are fully vested and can be exercised at any time

Instructions

a) Calculate basic earnings per share for 2020.

b) Calculate diluted earnings per share for 2020.

c) Calculate the price to earnings ratio (PE ratio) using the basic EPS calculated in a above

if the market price per share is $30

d) Great Dane Corp. has a market price per share of $40 and a PE ratio of 12.5 Using the PE ratio

calculated in c above, what company offers the better value for shareholders if the

companies are very similar and equally competitive both now and in the future? Provide a

brief explanation.

Answer & Explanation Solved by verified expert

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