Gruen Inc. has $1,000,$ $$100$ par, $6\%$ preferred stocks outstanding during the entire year. Each preferred stock can be converted into $2$ shares of common stock. The company's tax rate is $30\%.$ What would be the effect of the assumed conversion on the denominator of diluted EPS assuming the preferred stocks were dilutive?

Multiple choice question.

The denominator would not change.

The denominator would decrease by $2,000$ shares.

The denominator would increase by $2,000$ shares.