Answer:
The answer is:
A. Yes
B. 3.6
C. 3.43
Explanation:
A. Yes, the warrants is dilutive because the average market price($15) is higher than option price($10).
B. Since there is no preferred shares or preferred dividends, the basic earnings per share is:
Net income ÷ weighted average shares
= $360,000 ÷ 100,000 shares
= 3.6
C. First we need to find the incremental shares. The formula is:
[(average market price - option price) ÷ average market price]x number of shares
[($15 - $10) ÷ $15] x 15,000 shares
$0.33333 * 15,000 shares
5,000 shares
Total number of shares is now 105,000shares(100,000 shares + 5,000)
Therefore, diluted shares is now
$360,000 ÷ 105,000 shares
3.43
