Dover Inc. had 100,000 shares of common stock outstanding throughout Year 1. Net income was $350,000. <br/>Additional data:<br/>- 10,000 options outstanding to purchase common stock at $20/share. Average market price was $25/share.<br/>- 2,000 shares of 6% $100 par cumulative convertible preferred stock. Each share converts to 5 common shares. Dividends were declared.<br/><br/>What is the Diluted Earnings Per Share (EPS) for Year 1?

Basic EPS Numerator: $350,000 - (2,000 * $100 * 6%) = $350,000 - $12,000 = $338,000.<br/>Basic EPS Denominator: 100,000.<br/>Basic EPS = $3.38.<br/><br/>Diluted EPS:<br/>1. Options (In the money: $25 > $20).<br/> Proceeds = 10,000 * $20 = $200,000.<br/> Shares repurchased = $200,000 / $25 = 8,000.<br/> Incremental shares = 10,000 - 8,000 = 2,000.<br/><br/>2. Convertible Preferred:<br/> Add back dividends to numerator: +$12,000.<br/> Add shares to denominator: 2,000 * 5 = 10,000.<br/> Individual effect: $12,000 / 10,000 = $1.20 (Dilutive since < $3.38).<br/><br/>Diluted EPS Calculation:<br/>Numerator: $338,000 (Basic) + $12,000 (Pref Div) = $350,000.<br/>Denominator: 100,000 (Basic) + 2,000 (Options) + 10,000 (Pref) = 112,000.<br/>Diluted EPS = $350,000 / 112,000 = $3.125 -> Round to $3.12 (or check precision, usually 2 decimals).