Convertible noncumulative 6% preferred stock, $100 par issued at $104, 8,000 shares. Each preferred share is convertible into 4 shares of common stock. $800,000

Nonconvertible cumulative 8% preferred stock, $20 par $100,000

Net income, Year 1 $2,000,000

Other information:

Vested, incentive employee stock options, exercisable at $23 per share, 400,000 options outstanding for the entire year.

Vested, incentive employee stock options, exercisable at $14 per share, 300,000 options outstanding for the entire year.

Warrants exercisable at $15 per share, 20,000 warrants outstanding for the entire year.

Preferred dividends were declared and paid at the stated rates. On December 31, Year 1, the price per common share was $22, and the average price for the year was $20. All convertible securities, options, and warrants have been adjusted for the stock dividend. The tax rate is 20%.

The following common shares transactions took place during the year.

Date	Shares transactions	Number of shares
January 1, Year 1	Shares outstanding,	800,000
April 1, Year 1	Shares issued	200,000
June 1, Year 1	25% stock dividend issued	250,000
October 1, Year 1	Treasury shares repurchased	40,000

---- Compute (1) the incremental effect on net income, (2) the incremental effect on weighted average shares outstanding, and (3) Earnings per Incremental Share for each potentially dilutive security.

--- Compute Diluted Earnings per Share, showing the number to 4 decimal places. Remember that this is an iterative calculation.