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Question 4.16: A Diluted EPS Calculation Using the If-Converted Method for ...

A Diluted EPS Calculation Using the If-Converted Method for Preferred Stock

For the year ended 31 December 2006, Bright-Warm Utility Company had net income of $1,750,000. The company had an average of 500,000 shares of common stock outstanding, 20,000 shares of convertible preferred, and no other potentially dilutive securities. Each share of preferred pays a dividend of $10 per share, and each is convertible into five shares of the company’s common stock. Calculate the company’s basic and diluted EPS.

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