Question

Pender Corporation has 500,000 common shares issued and outstanding. It has $2,000,000 of convertible preferred outstanding....

Pender Corporation has 500,000 common shares issued and outstanding. It has $2,000,000 of convertible preferred outstanding. It can be converted to common stock at the rate of 100 shares per $1,000 of Preferred. The current share price is $19.50. Compute its fully diluted shares.

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Answer #1

Fully diluted shares are total common number of shares of an organization which are outstanding and available for trade in the open market after exercise of all possible conversion options such as employee stock options and convertible bonds.

Pender Corporation has 500,000 common stock outstanding and has $2,000,000 outstanding as convertible preferred which could be converted to 100 common shares per $1,000 of preferred.

Hence, number of common shares through conversion of preferred stock = $2,000,000 / $1,000 X 100 shares = 200,000 shares.

Therefore, fully diluted shares of Pender Corporation = Common stock already outstanding + Conversion of preferred shares = 500,000 + 200,000 = 700,000 shares.

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