At Dec. 31, 20X3, Lowen Co. had 800,000 shares of common stock outstanding. In addition, Lowen had 300,000 shares of preferred stock which were convertible into 500,000 shares of common stock. During 20X4, Lowen paid $600,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for 20X4 was $3,400,000 and the income tax rate was 40%. The diluted earnings per share for 20X4 is (rounded to the nearest penny):

a. $1.86

b. $2.62

c. 3.76

d. 4.26