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A company's net income for 2020 is $50,000. It has 2,000 stock options outstanding. These options...

A company's net income for 2020 is $50,000. It has 2,000 stock options outstanding. These options were issued during 2019, each exercisable for one share at $37. None has been exercised. 40,000 shares of common were outstanding during 2020. Suppose the average market price of the company’s stock during 2020 can be 44, 46, 27, or 54. For which average market price will these stock options be antidilutive? Please enter one (and only one) of the average market prices provided by the problem.

Solutions

Expert Solution

Earning Per share
= Net Income = 50,000 = 1.25
   Outstanding shares 40,000
Calculation of Diluted and Antidiluted EPS
Sr no Particulars Amount Amount Amount Amount
1 Net income 50000
2 Outstanding shares 40000
3 Options issued 2000
4 Excise Price 37
5 Amout paid for options (3)*(4) 74000
6 Market price 44 46 27 54
7 Value in current shares (5)/(6) 1681.818182 1608.695652 2740.740741 1370.37037
8 Diluted share (3)-(7) 318.1818182 391.3043478 -740.7407407 629.6296296
9 Diluted Eps (1)/((2)+(8)) 1.240135287 1.237890205 1.273584906 1.230628988
10 Dilutive(d)/antidilutive(a) d d a d
Conclution : At Average market price of 27 this stock will be antidilutive.

ekkarill92 answered 1 year ago
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