Question

Fully vested incentive stock options exercisable at $54 per share to obtain 36,000 shares of common stock were outstanding during a period when the average market price of the common stock was $64 and the ending market price was $64. What will be the net increase in the weighted-average number of shares outstanding due to the assumed exercise of these options when calculating diluted earnings per share

Answer 1

Answer: 5,625 shares

Explanation:

First we would need to calculate the number of shares that would have been bought at the Market Price.

We can do this by multiplying the number of Options by their price and then dividing by the market price.

That would be,

= 36,000 * 54

= $1,944,000 will be paid to exercise the options.

Dividing the Options by the market price will then show us how many shares could have been bought at the Market Price ,

= 1,944,000/ 64

= 30,375 shares could have been purchased at the Market price.

To find the net increase in the weighted-average number of shares outstanding due to the assumed exercise of these options when calculating diluted earnings per share we will subtract the No. Of shares that could have been bought at the Market Price from the No. Of options.

= 36,000 - 30,375

= 5,625 shares.

5,625 shares is the net increase.