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Basic Question 35 of 40
The Widget Company had net income of $1 million for the period. There are 1 million shares of Widget common stock outstanding. If there are 100,000 options outstanding with an exercise price of $40, what is the diluted earnings per share for Widget common stock if the current price of a share is $50?
B. $1.01
C. $0.98
A. $1.00
B. $1.01
C. $0.98
User Contributed Comments 8
| User | Comment |
|---|---|
| katybo | $10*100.000/$50 = 20.000 |
| Done | ($10*100,000)/$50 = $20,000. Add to denominator. 1,000,000/1,020,000 = $.9803 |
| nayagan | Looking at the choices, this question requires little math. Since strike is below AMP, you know diluted EPS < basic EPS. Assuming most of us are fairly intelligent, it should have been obvious that basic EPS was 1.00 (1mm/1mm), so answer must be less than 1.00! |
| Sam123456 | Yeah 1 million dollars divided by 1 million shares and then knowing that the denominator will increase to take into account the dilution due to strike price < market price results in an EPS of less than $ 1/share. |
| jonan203 | HP12C: 1,000,000<enter><enter> 100,000<enter> 10<times> 50<divide> 1,000,000<plus><divide> = .98 |
| farhan92 | used a denominator of 1,200,000 instead of 1,020,000 |
| linzlinked | what if they give both current price and year average price? Which one should be used to cal the added shares? |
| Rohule | dilutive its less than basic so the only correct answer is c |
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Learning Outcome Statements
describe how earnings per share is calculated and calculate and interpret a company's basic and diluted earnings per share for companies with simple and complex capital structures including those with antidilutive securities
CFA® 2024 Level I Curriculum, Volume 2, Module 2.