During 2017, Madrid Ltd.had 200,000 common shares, 30,000 non-cumulative convertible preferred shares, and $1,500,000 10% convertible bonds outstanding.The preferred shares are convertible into 40,000 common shares.During 2017, Madrid paid dividends of $1.20 per share to the common shares and $2.00 per share to the preferred shares.Each $1,000 bond is convertible into 45 common shares.The net income for 2017 was $900,000 and the income tax rate was 30%.Diluted earnings per share for 2017 is

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To calculate diluted EPS, first calculate basic EPS: Net income ($900,000) minus preferred dividends (30,000 shares * $2 = $60,000) equals $840,000. Basic EPS = $840,000 / 200,000 shares = $4.20. For dilution, add shares from convertible preferred (40,000) and bonds (1,500 bonds * 45 shares = 67,500). Adjust net income for bond interest (1,500,000 * 10% * (1-0.30) = $105,000). Adjusted net income = $900,000 + $105,000 = $1,005,000. Diluted EPS = $1,005,000 / (200,000 + 40,000 + 67,500) = $3.27.