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Dulce Corporation had 200,000 shares of common stock outstanding during the current year. There were also options for 10,000 shares of common stock were granted with an exercise price of $20. The market price of the common stock averaged $25 for the year. Net income was $4 million. What is diluted EPS (rounded)

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Answer:

$19.80

Explanation:

The Diluted EPS of Dulce Corporation shall be determined through the following mentioned formula:

Diluted EPS=Net income/Number of outstanding shares

Net income= $4 million

Number of outstanding shares=Common stock shares+shares issued for free due to share options

Common stock shares=200,000

shares issued for free due to share options=Number of options*Intrinsic value/market price of common shares

Number of options=10,000

Intrinsic value=market price-exercise price=$25-$20=$5

Shares exercised due to share options=10,000*5/25=2,000

Diluted EPS=$4,000,000/200,000+2,000

                   =$19.80

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