Burnet Company had 30,000 shares of common stock outstanding on January 1, 2009. On April 1, 2009, the company issued 15,000 shares of common stock. The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives. The end-of-year market price of common stock was $8 while the average for the year was $9. The company reported net income in the amount of $189,374 for 2009. What is the effect of the options?
A)The options are anti-dilutive.
B)The options will dilute EPS by $.09 per share.
C)The options will dilute EPS by $.33 per share.
D)The options will dilute EPS by $.17 per share.Market price is less than exercise price, so the options are ignored when computing EPS.

Question

Quizplus · Accepted Answer

Since the market price is lower than the exercise price, the options are considered to be anti-dilutive and are ignored when calculating EPS. Therefore, the options have no effect on EPS.

Burnet Company Had 30,000 Shares of Common Stock Outstanding on January