Question

10. All of the following are potentially dilutive in computing diluted EPS except:

A)     Employee stock options

B)     Convertible preferred stock

C)     Convertible bonds

D)    Warrants

E)     All of the above are dilutive securities

Answer 1

Ans ) E All of the above are dilutive securities    

Financial Instruments which is not stock at the time of issue but can converted into stock at any time would reduce the Diluted EPS.

Instrument which effect diluted EPS are:-

1. Convertible Bonds
2. Convertible Preferred stock
3. Warrants
4. Employees stock option

Example: Number of Shares outstanding: 50000 Net Profit after tax =$500,000 EPS=($500,000/50000)=$10 per share.

If after conversion of bonds into equity shares, Number of shares outstanding =60,000 Net Profit after tax=$500,000 EPS=($500,000/60000)=$8.33 per share.