Question

Fully vested incentive stock options exercisable at $50 per share to obtain 24,000 shares of common stock were outstanding during a period when the average market price of the common stock was $60 and the ending market price was $60. By how many shares will the assumed exercise of these options increase the weighted-average number of shares outstanding when calculating diluted earnings per share?

Answer 1

Answer:

4000 shares

Explanation:

Given:

Exercisable price per share = $50

Number of shares of common stocks to be obtained = 24,000

Average market price of the common share = $60

Ending market price per share = $60

Total Amount for the shares = Number of shares × Price per share

or

Total Amount for the shares = 24,000 × $50 = $1,200,000

Thus,

number of shares purchased = $\frac{\textup{Total amount for share}}{\textup{Average market price per share}}$

or

number of shares purchased = $\frac{1200000}{60}$

or

The number of shares purchased = 20000

Hence,

Increased weighted-average number of shares

= Shares to be obtained - Actual number of shares purchased

or

= 24000 - 20000 = 4000 shares