Dilution of earnings occurs because
A) a new issue of common stock creates more shares outstanding, which often reduces earnings per share temporarily.
B) the company suffers a decline in earnings after taxes.
C) the investment banker collects an underwriting fee.
D) all of these options are correct.

Question

Quizplus · Accepted Answer

Dilution of earnings occurs when a new issue of common stock is made, resulting in more shares outstanding, and often reducing earnings per share temporarily. This is because the earnings are now divided among a larger number of shares, leading to a decrease in earnings per share. The other options, such as a decline in earnings after taxes or an investment banker fee, may also affect earnings, but they do not directly lead to dilution of earnings.

Dilution of Earnings Occurs Because