1.The Pacioli Corporation reports net income for Year One of $800,000. The company had 155,000 shares of common stock outstanding for the entire year as well as 90,000 shares of preferred stock. The common stock was paid $1 per share as a dividend while the preferred shareholders received $2 per share. The common stock had an average price for the year of $40 per share while the preferred stock had an average price of $60 per share. The company also had 20,000 stock options outstanding for the year. For $10, each option could be converted into a share of common stock. The effective tax rate is 25 percent. What should the company report as its diluted earnings per share (rounded) for Year One?

$3.81

$3.65

$3.54

$3.77