Question
A company has the following details for the year: • Net Income = ₹12,00,000 • Preferred Dividends = ₹1,00,000 • Outstanding Shares (Common Stock) = 500,000 • Convertible Preferred Stock (Convertible into 100,000 shares) • Convertible Bonds = ₹2,00,000 (convertible into 20,000 shares) • Interest on Convertible Bonds = ₹10,000 (tax rate = 30%) What is the Diluted Earnings Per Share (EP
- S ?
2. Adjusted Net Income for Diluted EPS: For Diluted EPS, we add back the interest saved from the convertible bonds (after tax adjustment) because these bonds would not accrue interest if converted into stock. • Interest saved on convertible bonds: Interest saved = ₹10,000 × (1 – 0.30) = ₹10,000 × 0.70 = ₹7,000 So, we add ₹7,000 to the net income: Adjusted Net Income = ₹12,00,000 – ₹1,00,000 + ₹7,000 = ₹11,07,000 3. Adjusted Shares Outstanding for Diluted EPS: Next, we account for the convertible preferred stock and convertible bonds: • Shares from convertible preferred stock 100,000 shares • Shares from convertible bonds = 20,000 shares Thus, the total adjusted shares are: Adjusted Shares 500,000 + 100,000 + 20,000 = 620,000 
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