Grove Plcs issued share capital is currently 8,000,000 ordinary shares of $0.50 each. On October 1, 2016 the company issued $4,000,000 worth of 12% convertible loan stocks. Each $500 nominal worth of loan stock is convertible over the next three years as follows:

On December 31, 2016 350 shares

On December 31, 2017 320 shares

On December 31, 2018 300 shares

The following are the trading results for the years ended December 31:

2016 2017

Net Profit before interest and tax $6,400,000 $7,200,000

The applicable tax rate is 35%.

Required:

1. Calculate the basic EPS for 2016 and 2017
2. Calculate the diluted EPS for 2016 and 2017

Explain briefly to a potential investor the significance of diluted EPS