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sir dilution occur when the holder of convertibles option or warrants exercise option because its cause decrease in % of shareholding of existing shareholder and decrease their voting rights or earning per share and dividends per share but sir kaplan says dilution occurs because share issued under convertibles option or warrants is at below market price sir how is this means what is this sentence says only below issued at below market price can cause dilution or dilution occurs when we issue at market price sir explain this for i will be thankful to you
If a company issues shares at market price, there’s (in theory) no dilution because theory suggests that the market price of a share is equal to the present value of the future earnings attributable to a share
Thus, the issue of new shares at market price means that the new shares will earn the same as the existing shares are already earning
The holders of convertible notes will convert into shares only whe the shares are worth more than the value of the convertible note. Thus, such conversions will always be for a value greater than the note itself, and thus there will be dilution
OK?
Because the money received will not earn the present value of one share’s future earnings – as just explained. So existing shares will keep earning as before but the new shares aren’t pulling their weight so, on average, eps will fall
sir you means that earning capacity of each share will be reduce as new share has contributed less to the equity but they can earn same as existing shares and existing share has contributed more to equity and they earn more but the average earining per share is now reduced and they have to be earned less after new share thus the existing share is now diluted
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