Warrants exercisable at $ 20 each to obtain 50,000 common shares were outstanding during a period when the average market price of the common shares was $ 25. Application of the treasury stock method in calculating diluted earnings per share will increase the weighted average number of outstanding shares by

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The treasury stock method assumes that the proceeds from the exercise of the warrants are used to repurchase shares at the average market price. The proceeds from exercising 50,000 warrants at $20 each would be $1,000,000. At an average market price of $25, this would repurchase 40,000 shares ($1,000,000 / $25). Therefore, the increase in the weighted average number of shares is 50,000 - 40,000 = 10,000.

Warrants Exercisable at $ 20 Each to Obtain 50,000 Common