AuthorTopic: Diluted EPS - Conv. P.S.
wiwin
@2014-03-16 22:46:23
I'm confused with the add/subtract of the Pref Dividends in this question. I would assume to subtract the pref div. from the NI but in this example it was added to the numerator.

Earnings for equity in year to 31/Dec/X1: \$4,000,000
Common stock of \$10 each: \$20,000,000

There have been an issue throughout the year \$5,000,000 of 7% convertible preferred stock. The terms of conversion are that every \$10 nominal value of preferred stock can be converted to 1.1 common shares.

Calculate fully diluted EPS for 20X1.

Basic EPS = \$2.00
Diluted EPS = \$1.71

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Should I subtract the pref dividend or add the pref dividend?
-If subtracted it's something else, or/if (netted from -pref. div + convert. pref div), then EPS would also be different
cfaone
@2014-03-24 08:47:43
Net income = earning for equity + dividend paid
4,000,000 + 350,000 = 4,350,000

Basic EPS: net income � divided paid/numbers of shares outstanding.

4,000,000/200,000 = 2

Diluted EPS = 4,350,000/ 2,550,000 =1.70588

Preferred stock = 5,000,000/10 = 500,000
Preferred stock = 1.1 common stock
500,000x 1.1 = 550,000

If it was net income in place of earning from equity then dividend would have deducted for basic EPS calculation
Piuu
@2014-03-25 04:04:16
Even i am confused with these kind of problems ....
I got that the dividend paid comes from
the convertible preffered stock =50,00,000 * .07 = 3,50,000.
Sculpel
@2014-04-24 02:28:07
Hey! Where did you got 350 k dividents paid? There were no such figures in problem's situation!

### CFA Discussion Topic: Diluted EPS - Conv. P.S. 