Question

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.

Answer 1

Ans: $ 27

Explanation:8

1) Options are said to be dilutive when,

Exercise Price

>(greater than)

Average Market Price

2) If Exercise price is less than or equal to average market price , then stock options are said to be antidilutive.

3)

Exercise Price	( >,<,=)	Average Market Price	Result
$37	<	$44	Anti- dilutive
$37	<	$46	Anti - dilutive
$37	>	$27	Dilutive
$37	<	$54	Antit - dilutive

4) So, from above table, we can conclude,

Options are dilutive at $ 27 market price only.

5) Other market price i.e $44,$46, $54 are greater than exercise price, therefore antidilutive.