Calculate the Income Effect on the Incremental EPS for the Following

Calculate the income effect on the incremental EPS for the following instrument: $$\begin{array}{l}\begin{array} { |l | r| } \hline \text { Convertible bonds outstanding, yield of } 6 \% \text { and }\\\text { Ioupon rate of } 6 \% & \$ 2,000,000 \\\hline \text { Issue date } & \text { January } 1,2015 \\\hline \text { Maturity date } & \text { December } 31,2018 \\\hline \text { Conversion rate for each } \$ 1,000 \text { bond } & \text { 20 ordinary shares } \\\hline \text { Income tax rate } & 25 \% \\\hline\end{array}\end{array}$$

A) 0.75
B) 2.25
C) 40,000
D) 90,000

Correct Answer:

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