Earnings Per Share Starburst Corporation reported net income of $300,000 for the year 2000. On December 31, 1999, Starburst had 75,000 shares of common stock outstanding. On January 1, 2000, Starburst sold an additional 25,000 shares of common stock and 10,000 shares of preferred stock. The preferred stock pays an annual total dividend of $60,000. A dividend of 60 cents per share currently is being paid on common shares, and is likely to continue at that level for the next five years.

a. Compute earnings per common share for 2000.

b. Suppose the preferred stock (known as convertible preferred) had a feature allowing stockholders to convert the preferred stock into a total of 50,000 shares of common stock at their option. Even though the preferred shares have not been converted into common stock by the end of 2000, why would a common shareholder be concerned about possible future conversion?