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Are the convertible preferred shares potentially dilutive

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Reference no: EM132489625

Point 1: ABC company is preparing earning per share for 2019, the net income for the year ended December 31, 2019 was $800,000 and there were 120,000 common shares and 500 convertible preferred shares outstanding during the year (convertible to 1000 common shares). ABC has 6 % convertible bonds outstanding worth a total of $200,000. Each $1000 bond is convertible into 25 common shares. ABC's shares were trading at $75, on average, during 2019.

Point 2: The $10 dividend on the preferred shares is cumulative, and the tax rate is 25%.

Qusetion 1: Are the convertible preferred shares potentially dilutive? Why or Why not? Show all your work.

Reference no: EM132489625

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