New England Limited (NEL) had 10 million ordinary shares in issue throughout the year ended 30 June 2013. On 1 July 2012 it had issued $2 million of 8% convertible loan stock, each $5 of loan stock convertible into 4 ordinary shares on 1 July 2016 at the option of the holder.

NEL had profit after tax for the year ended 30 June 2013 of $7,400,000. It pays tax on profits at 30%.

I. Calculate the diluted EPS for the year (6marks)

Explain how the calculation of diluted earnings per share enhances the predictive capabilities of accounting information