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Which of the following is/are true?
I. A simple capital structure is one that does not include any common stock equivalents or dilutive contingent securities.
II. A firm with common stock, preferred equity and debt can be considered to have a simple capital structure.
III. Any security that is dilutive must be included in the calculation of Diluted EPS.
A. I & II
C. I only
D. I, II & III
Answer: D
A simple capital structure consists of only common stock and non-convertible senior securities while a complex structure is one which contains potentially dilutive securities. Since there is no contingent conversion associated with straight, preferred equity, it is considered to be a part of a simple capital structure. Finally, only dilutive securities i.e. securities that do not increase earnings or decrease losses are included in the calculation of DEPS. Anti-dilutive securities are ignored in the calculations.

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