Question

Earnings dilution considers the income that the target firm would add to the acquirer's net income and computes the number of shares that could be issued without diluting the EPS for the existing shareholders.

A) True
B) False

Answer 1

B) False

Step-by-step explanation:

Earning dilution or diluted EPS takes into account the income that the target firm would add to the acquirer's net income and all the dilutive securities like convertible debentures , stock options etc . When converted , it increases the no of shares outstanding which decreases the EPS.

So the statement that EPS is not diluted in the process is wrong.