Does a company with dilutive convertible debt and dilutive convertible preferred shares have to add the after-tax interest and after-tax preferred dividends back to net income in the numerator computation of diluted EPS? O A. This is only true for convertible debt, but not for convertible preferred shares. Debt pays interest, which is tax deductible. Thus, if we assume that interest is avoided, then we must also assume that we lose the associated tax benefit. Preferred stock, however, pays dividends which are not tax deductible. Since dividends are not tax deductible, it would not make sense to make the adjustment on an after-tax basis. OB. This is only true for convertible preferred shares, but not for convertible debt. Dividends from preferred stock are tax deductible. Thus, if we assume that these dividends are avoided, then we must also assume that we lose the associated tax benefit. Convertible debt, however, pays interest which is not tax deductible. Since convertible debt interest is not tax deductible, it would not make sense to make the adjustment on an after-tax basis. O C. This is true for both convertible debt and convertible preferred shares. Debt pays interest, which is tax deductible. Thus, if we assume that interest is avoided, then we must also assume that we lose the associated tax benefit. Preferred stock pays dividends which are also tax deductible. Hence, we must also assume that since the dividends are avoided, we lose the associated tax benefit. Therefore, both adjustments are made on an after-tax basis. OD. This is not true for convertible debt or convertible preferred shares. The interest from convertible debt is not tax deductible, nor are dividends from convertible preferred shares. Therefore, it would not make sense to make either adjustment on an after-tax basis