If the options' exercise price is $15 while the current share price is $10, what is the dilutive effect?

If the options' exercise price is $15 while the current share price is $10, what is the dilutive effect?

• A. Fully dilutive impact is zero; no additional shares are created
• B. The fully diluted value is $1,500
• C. The company must issue new debt
• D. The options are exercised

Answer: (A)

The key idea is when options actually cause more shares to be issued. If the option’s strike price is higher than the current share price, the option is out-of-the-money and holders wouldn’t exercise it. In diluted EPS calculations, out-of-the-money options are considered anti-dilutive and are ignored, so no additional shares are created. That means the fully diluted impact is zero. The other statements don’t fit: there isn’t a defined fully diluted value to compute without knowing how many options there are, issuing debt isn’t part of how options affect dilution, and the options would not be exercised under these price conditions.

The key idea is when options actually cause more shares to be issued. If the option’s strike price is higher than the current share price, the option is out-of-the-money and holders wouldn’t exercise it. In diluted EPS calculations, out-of-the-money options are considered anti-dilutive and are ignored, so no additional shares are created. That means the fully diluted impact is zero. The other statements don’t fit: there isn’t a defined fully diluted value to compute without knowing how many options there are, issuing debt isn’t part of how options affect dilution, and the options would not be exercised under these price conditions.