CFA Level I · CFA Level I Exam · Analyzing Income Statements
A company has net income of 9,000,000 and 4,000,000 weighted average ordinary shares. It has 1,000,000 convertible preferred shares paying 1.50 per share dividend, each convertible into one ordinary share. Diluted EPS is closest to:
Diluted EPS is about 1.80. Basic EPS is 1.875 after deducting 1.5 million of preferred dividends. Assuming conversion adds back the dividend and 1 million shares, giving 9,000,000 over 5,000,000. That is lower than basic, so the preferred is dilutive.
- A1.50
- B1.80Correct
- C2.25
Explanation
Basic EPS = (9,000,000 - 1,500,000) / 4,000,000 = 1.875. If converted, the dividend is added back: 9,000,000 / 5,000,000 = 1.80. Since 1.80 is below 1.875, the preferred is dilutive, so diluted EPS is 1.80.
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