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Earnings per share, debt financing costs and debt composition - a simulation model

Published: 01 January 1971 Publication History

Abstract

The advent of the Accounting Principles Board Opinion No. 15, Earnings Per Share has1 generated a good deal of discussion concerning the theoretical underpinning, the complexities of computation and the final results of determining primary and fully diluted earnings per share. Both Opinion No. 15 and the earlier Opinion No. 9, which was modified by Opinion No. 15, reflect the concern of the accounting profession with a single, important statistic.
The new ruling required convertible debt be considered as common stock equivalents, and therefore enter to the denominator of the primary EPS statistic, if, and only if, “... at the time of issuance, based on market price, it has a cash yield of less than 66 2/3% of the then current bank prime interest rate.”2 Otherwise, it is included in the fully diluted EPS, which reflects maximum potential dilution.

References

[1]
Accounting Principles Board of the American Institute of Certified Public Accountants, Opinion No. 15, Earnings Per Share (AICPA, 1969) and J. T. Ball, Computing Earnings Per Share: Unofficial Accounting Interpretations of APB Opinion No. 15, AICPA, 1970.
[2]
Opinion No. 15, op. cit., p. 229.
[3]
Ibid., p. 230
[4]
Simply by multiplying the prime rate by the appropriate state of the economy column and the specific debt-row. The short term rate is simply equal to the prime rate.
[5]
Growth is related to total assets and is fixed at 8 percent in this study.
[6]
Scheffe, H. (1961), The Analysis of Variance, New York: John Wiley and Sons, 1961, p.121.
[7]
Ibid., p. 122.

Cited By

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  • (2015)A survey on methodological aspects of computer simulation as research techniqueProceedings of the 2015 Winter Simulation Conference10.5555/2888619.2888930(2704-2715)Online publication date: 6-Dec-2015
  • (2015)A survey on methodological aspects of computer simulation as research technique2015 Winter Simulation Conference (WSC)10.1109/WSC.2015.7408377(2704-2715)Online publication date: Dec-2015

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cover image ACM Conferences
WSC '71: Proceedings of the 5th conference on Winter simulation
January 1971
544 pages
ISBN:9781450374088
DOI:10.1145/800294
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Association for Computing Machinery

New York, NY, United States

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Published: 01 January 1971

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Cited By

View all
  • (2015)A survey on methodological aspects of computer simulation as research techniqueProceedings of the 2015 Winter Simulation Conference10.5555/2888619.2888930(2704-2715)Online publication date: 6-Dec-2015
  • (2015)A survey on methodological aspects of computer simulation as research technique2015 Winter Simulation Conference (WSC)10.1109/WSC.2015.7408377(2704-2715)Online publication date: Dec-2015

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