During 2021, Farewell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Farewell did not declare or pay any dividends during 2021. Farewell's net income for the year ended December 31, 2021, was $2.5 million. The income tax rate is 25%. Farewell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The options vest after one year. The market price of the common stock averaged $30 per share during 2021. What is Farewell's diluted earnings per share for 2021, rounded to the nearest cent?

$4.40 per share

Explanation:

The formula and the computation of the diluted earning per share is shown below:

Diluted earning per share =(Net Income - preferred Dividend) ÷ (weighted number of shares outstanding)

where,

Net income is $2.5 million

Preference dividend is

= 50,000 shares × $100 × 6%

= $300,000

And, the weighted number of outstanding shares is

= Number of shares of common stock + incentive stock options

= 500,000 shares + 10,000 shares ÷ $30 per share

= 500,000 shares + 333.33 shares

= 500,333.33 shares

So, the diluted earning per share is

= ($2,500,000 - $300,000) ÷ (500,333.33 shares)

= $4.40 per share

It shows the relationship between the net income after considered the preference dividend and the weighted number of outstanding shares

you're crazy if you think that someone is going to write a 500 word report for you.

lawyer < 3 love yahh vic. imu