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Question:
The warrants and options are dilutive, as their exercise prices are lower than the average market price of the company’s stock over the year.
Proceeds to company from exercise of warrants = $35 x 10,000 = $350,000
Number of shares repurchased at average market price = $350,000/ 40 = 8,750
Net increase in number of shares outstanding = 10,000 − 8,750 = 1,250
Proceeds to company from exercise of options = $30 x 20,000 = $600,000
Number of shares repurchased at average market price = $600,000/ 40 = 15,000
Net increase in number of shares outstanding = 20,000 − 15,000 = 5,000
1,250 + 5,000 = 6,250
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