The Potential Dilutive Effect of the Exercise of Share Options

question 111

Multiple Choice

The potential dilutive effect of the exercise of share options or warrants will affect which of the following when calculating diluted earnings per share?

• A) the earnings per share numerator
• B) the earnings per share denominator
• C) both the numerator and the denominator
• D) neither the numerator nor the denominator

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Definitions:

Pigovian Tax

A tax or charge levied on the production of a product that generates negative externalities. If set correctly, the tax will precisely offset the overallocation (overproduction) generated by the negative externality.

Clean Up

The process of removing contaminants, waste, or undesirable items from an area, thus restoring it to its original or acceptable condition.

Moral Hazard

The situation where one party takes on risk because they know that another party will bear the consequences.

Adverse Selection

A situation in insurance and markets where higher-risk individuals are more likely to select and use insurance or services, potentially leading to market inefficiencies.