Series 79 practice questionhardEnterprise Value vs Equity Value
A company has 10 million basic shares, 1 million in-the-money options (exercise price $10, share price $30), and $20 million cash proceeds if exercised. What is the diluted share count using the treasury stock method?
- A10 million
- B10.67 million✓ Correct answer
- C11 million
- D11.5 million
Explanation
Why B — 10.67 million
The treasury stock method adds 1 million new shares but assumes the company uses the $10 million from exercises to repurchase shares at $30, resulting in 0.67 million net new shares. Ignoring this dilution can understate per-share values.
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