The John Company had a net income of $500,000 for the year, and 100,000 shares of common stock outstanding. john did not have any preferred stock outstanding. The Company had 10,000 stock options outstanding. The exercise price of each option is $10 a share. The average market price of common stock for the year was $5 a share, and the year-end market price was $7 a share. What is the diluted earnings per share?
The exercise of the option is higher than the market price (Out of the money), thus will not be treated as potential equity shares
Diluted EPS = Net Income / Equity shares outstanding + Potential equity shares
= $500,000 / 100,000 = $5
The John Company had a net income of $500,000 for the year, and 100,000 shares of...