Answer: $19.80
Explanation:
Diluted Earnings Per Share is calculated to see the EPS of a company if all covertible securities were converted.
Convertible securities can be Options, preferred shares, debentures etc.
To calculate the diluted Eps, you use the following formula.
= Net Income / Weighted Average of Common Stock + conversion of dilutible securities
To convert the options into securities we do the following,
= (10,000 * 20)/25
= 8000 shares
We will then remove this 8000 shares from the 10,000 shares of common stock to leave us with 2,000.
This is done to account for the no. Of shares at market price.
Plugging in the numbers we have,
= 4,000,000 / 200,000 + 2,000
= 19.801980198
=$19.80
The diluted EPS is $19.80
