Dilution of earnings occurs because:
A) a new issue of common stock creates more shares outstanding that reduces earnings per share temporarily.
B) the company suffers a decline in earnings after taxes.
C) the investment dealer collects an underwriting fee.
D) poor financial performance leading to reduced earnings.

Question

Quizplus · Accepted Answer

Dilution of earnings occurs when a new issue of common stock is made, increasing the number of shares outstanding, which reduces the earnings per share temporarily. This happens because the same amount of earnings is now being spread across a larger number of shares.

Dilution of Earnings Occurs Because