A company with convertible bonds outstanding will need to adjust the denominator of the EPS equation.The adjustment will consist of the ________.

Question

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The adjustment will consist of multiplying the conversion ratio by the number of bonds outstanding. This is because convertible bonds can be converted into common stock, so the number of shares outstanding can potentially increase. Therefore, the denominator of the EPS equation needs to reflect this potential increase in shares.

A Company with Convertible Bonds Outstanding Will Need to Adjust