ACCA FR · Chapter 10 · Question 7 of 9
Mallard Co (earnings $6,000,000, 10 million shares in issue) also has 2 million share options outstanding, exercisable at $4.00. The average market price of its shares during the year was $5.00. Considering only the options, what is diluted EPS? (Round to two decimal places.)
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 57.69 cents
Explanation
Options are treated as if the shares were issued partly at market price (no dilution) and partly free of charge. Cash on exercise = 2m x $4.00 = $8,000,000, which would buy 1.6m shares at $5.00. Free shares = 2m - 1.6m = 0.4m. Diluted EPS = $6,000,000 / 10.4m = 57.69 cents.
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