What is the outcome when calculating diluted shares outstanding from convertible bonds?

When assessing the impact of convertible bonds on diluted shares outstanding, the rationale for the answer indicating that they contribute to an increase in total shares is based on the nature of convertible bonds. Convertible bonds are a type of debt that can be converted into a predetermined number of shares of the company's equity, usually at the bondholder's discretion.

When these bonds are converted into shares, the total number of outstanding shares increases, which is why they are considered in calculations of diluted shares outstanding. This is important as it reflects the potential dilution of existing shareholders' ownership if the bonds are converted. Thus, when assessing the fully diluted share count, which takes into account all potential shares that could be issued, the convertible bonds are included because they could lead to an increase in total shares if converted.

The other options relate to how convertible bonds are treated in different contexts. For instance, while they are indeed categorized as debt prior to conversion, that status does not impact the calculation of diluted shares outstanding. In the context of equity value, convertible bonds do not directly reduce the equity value but rather represent a potential for additional shares in the future, further supporting the position that they would contribute to an increase in total shares. Overall, understanding the function of convertible bonds in this respect