Hi,
I was trying to solve a question on Diluted EPS, on Schweser Note. Correct answer is C, but my answer is different from the official one. I know I might wrong, but I don’t know how. Why the correct answer calculate ($55-$50) at numerator ? Could you please explain to me? Thank you
Best regards,
Q.
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Following is the question.
Given the following information, how many shares should be used in computing diluted EPS?
- 300,000 shares outstanding.
- 100,000 warrants exercisable at $50 per share.
- Average share price is $55.
- Year-end share price is $60.
A. 9,091. B. 90,909. C. 309,091.
Official Answers:
C is correct. Since the exercise price of the warrants is less than the average share price, the warrants are dilutive. Using the treasury stock method to determine the denominator impact:
($55 - $50) / $55 * 100k shares = 9091 shares.
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My opinion: ( $50 / $55) * 100k shares = 90910 shares. Why the correct answer calculate ($55-$50) at numerator ?