In Calculating Earnings Per Share, a Company Uses the Treasury

question 34

Multiple Choice

In calculating earnings per share, a company uses the treasury stock method when

• A)it needs to value the cash received for a convertible bond
• B)it recognizes the assumed impact of exercising outstanding warrants
• C)it develops a methodology to handle the premium paid on exercised stock options
• D)it needs to value treasury stock repurchased during the year

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Definitions:

Net Present Value (NPV)

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Internal Rate of Return (IRR)

The specific rate at which the net present value of a project's cash flows equals zero.

Incremental Cash Flows

Incremental cash flows are the additional cash inflows or outflows expected from a new project or investment when compared to a baseline scenario.

Net Operating Working Capital

The difference between a company's operating current assets and its operating current liabilities, indicating the efficiency and short-term financial health in the company's core operations.