QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

52. Assume U.S. GAAP (generally accepted accounting principles) applies unless

otherwise noted.

An analyst gathers the following information about a company:

Shares of common stock outstanding 1,000,000

Net income for the year $1,500,000

Par value of convertible bonds with a 4 percent coupon rate $10,000,000

Par value of cumulative preferred stock with a 7 percent dividend rate $2,000,000

Tax rate 30%

The bonds were issued at par and can be converted into 300,000 common shares.

All securities were outstanding for the entire year. Diluted earnings per share is

closest to:

A. $1.05.

B. $1.26.

C. $1.36.