Question

Wildhorse Corp.’s net income for 2017 is $146,700. The only potentially dilutive securities outstanding were 2,200 call options issued during 2016, with each option being exercisable for one share at $18. None have been exercised, and 35,800 common shares were outstanding during 2017. The average market price of the company’s shares during 2017 was $27. Calculate diluted earnings per share for the year ended December 31, 2017 Assuming that the 2,200 call options were instead issued on November 1, 2017 (rather than in 2016), calculate diluted earnings per share for the year ended December 31, 2017. The average market price during the last two months of 2017 was $27.

Answer 1

Diluted EPS = Total Income/ (Outstanding shares + Diluted shares)

Diluted Shares = Option issues - value of option in current price

Option issued = 2200

Value of option in current price = Amount paid to excercise option / Current share price

Amount paid = (Option issue x Excercise price)

= (2200 x $18) = $ 39,600

Value of option in current price = $ 39,600 / $27

= 1466.67

Diluted Shares = 2200 - 1466.67

= 733.33

Diluted EPS = $ 146,700 / (35,800 + 733.33)

= $ 146,700 / 36533.33

Diluted EPS = 4.02 per shares