Know Your Rights Co

question 56

Essay

Know Your Rights Co. has three stock option plans outstanding on December 31, 2020. They provide the holders with the following entitlements:
• Stock option A-The holders may purchase 55,000 ordinary shares at any time on or before December 31, 2024 for $41 each.
• Stock option B-The holders may purchase 2,000 ordinary shares at any time on or before December 31, 2021 for $47 each. From January 1, 2022 to December 31, 2024 the holders may purchase 7,000 ordinary shares for $52 each.
• Stock option C-The holders may purchase 12,000 ordinary shares at any time on or before December 31, 2022 for $51 each.
The average price of ordinary shares in 2020 was $50 and its basic EPS from continuing operations for the year was $1.01.
Required:
a. Which of the stock options are dilutive and which are antidilutive in 2020? What is the rule in this respect?
b. Assuming that all three option plans have been in place the entire year, for each plan, determine the incremental number of shares, if any, that need to be considered for diluted EPS purposes.
c. Assume that stock option A was issued on April 1, 2020. Does this change your answer to part b? If so, what is the revised number of incremental shares for option A that need to be considered for diluted EPS purposes?

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Definitions:

Combinations

The selection of items from a collection, such that the order of selection does not matter, often used in probability and statistics.

Distinguishable

The quality of being clearly different or distinct in character or appearance, making something recognizable or understandable.

Ordered Arrangements

Refers to the organization of elements in a specific sequence where the order of these elements is important.

Probability

An estimation of the chances that an event will transpire, articulated as a number from 0 to 1.