Questions:
Walbury had a revenue before taxes of $900 million on which it had to pay a tax of 35%. During the year, it paid $16 million in dividends to the preferred shareholders. It had 220 million weighted average common shares outstanding and it also had 200,000 options outstanding which can be converted to ordinary shares at a price of $30 per share. During the year, the average price per share of Walbury has been $40. 

What is Walbury's basic EPS?

What is the difference between Walbury's basic and diluted EPS?

Reference answers:
# Step 1

Net income = income before taxes - Taxes
Net income = $900,000,000 - ($900,000,000 * 35%)
Net income = $900,000,000 - $315,000,000
Net income = $585,000,000

# Step 2

Basic EPS = (Net income - preferred share dividends) / Weighted average shares during the year

Basic EPS = ($585,000,000 - $16,000,000) / 220,000,000

Basic EPS = $2.58

Walbury's basic EPS is $2.58

Diluted EPS = (Net income - preferred dividends) / (Weighted average number of shares +  shares that would be issued if options are exercised - Shares that could have been purchased using the cash from options exercise)

Diluted EPS =  ($585,000,000 - $16,000,000) / (220,000,000 + 200,000 - 150,000)

Diluted EPS = $2.59

# Difference

$2.66 - $2.59 = $0.07

The difference between the Basic and Diluted EPS is $0.07