Which Statement Best Reflects the Issues Associated with the Computation

question 17

Multiple Choice

Which statement best reflects the issues associated with the computation of diluted earnings per share?

• A)Diluted earnings per share represents the potential impact of all shares of common stock.
• B)When presenting comparative financial statements, the impact of convertible bonds must be included for both years.
• C)Common stock options are considered dilutive when the average market price is greater than the option price.
• D)The impact on the denominator is always the determinate of whether or not to use diluted earnings per share.

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Definitions:

Dollar Today

The current value of the US dollar against a basket of foreign currencies, affecting import and export prices.

Equal Cash Flow

Recurrent inflow or outflow of cash that is the same in amount for each period.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as part of retirement planning.

Sensitivity Analysis

A technique used in financial modeling to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.