Xavier Industries owns 70% of Magneto Corporation’s common s…
Xavier Industries owns 70% of Magneto Corporation’s common stock. Both companies have an effective income tax rate of 40%. During 2038, Xavier reports separate operating income (after taxes) of $280,000 (excluding any income from Magneto) and Magneto reports net income of $90,000. As of January 1, 2038, Xavier’s capital structure consists of 100,000 shares of $10 par value common stock and 1,000 shares of $100 par value 12% convertible preferred stock, convertible into 10,000 shares of Xavier’s common stock. On April 1, 2038, Xavier issued 10,000 shares of common stock for $20 per share. On September 1, 2038, Xavier purchased 7,500 shares of common stock on the open market as treasury stock, paying $17 per share. As of January 1, 2038, Magneto’s capital structure consists of 20,000 shares of $10 par value common stock and $100,000 par value, 10% of nonconvertible preferred stock. None of Magneto’s preferred stock is owned by Xavier. Magneto also has $300,000 of 9% convertible bonds (issued at par) outstanding, convertible into 9,600 shares of Magneto’s common stock. In addition, Magneto has stock options outstanding granting its officers to purchase 12,000 shares of Xavier’s common stock at $15 per share. No options were exercised in 2038. The average market price of Xavier’s common stock in 2038 was $25 per share and the market price at the end of the year was $29 per share. Required: Compute 2038 basic consolidated earnings per share. Round your final answer to the nearest cent. Be sure to show all of your work. Compute 2038 diluted consolidated earnings per share. Round your final answer to the nearest cent. Be sure to show all of your work. Assume that all potentially dilutive securities are in fact dilutive (i.e. there is no need to check for antidilutive securities).