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Chapter 20

Example 5.6

Diluted EPS = 22c
$1,163,100 (W1)
DEPS = ––––––––––––– = 22.0c
5,285,000 (W2)

(W1) Notional earnings

If this loan stock was converted to shares the impact on earnings would be as
follows.

$ $

Basic earnings 1,105,000
Add notional interest saved

($830,000 × 10%) 83,000
Less extra tax $83,000 × 30% (24,900)

–––––––
58,100

–––––––––
Revised earnings 1,163,100

–––––––––
(W2) Notional weighted average of shares if conversion at highest
possible conversion

Basic number of shares 4,250,000

Notional extra shares 1,035,000
–––––––––
Revised number of shares 5,285,000

–––––––––

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