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Dear Mike,
From dilution workings you get to the following:
Existing options: 3,000,000
2,400,000
Free shares 600,000I don´t understand why 600,000 are free shares as the oustanding shares at year end are 4,000,000. Secondly I don´t know where 2,400,000 come from and why this figure is substracted from the outstanding options.
I´m stuck here eventhough I attempted example 5 where I find the same issue. I´m sure once I understand this I will be able to be able to understand example 5 also.
Thank you very much in advance.
Regards,
Isabel
Please could you explain me how do you get to 2,400,000 shares at Mid-market price of $5.
I presume the option price is $4 per share
3 million options, when exercised, will raise $12,000,000 cash
If we had wanted to raise that much cash during the year, we could have done so by issued 2,400,000 shares at $5 each
So, of the 3,000,000 option shares, that’s the equivalent of 2,400,000 issued at full price and therefore the other 600,000 must be issued free.
Is this not all fully explained in the course notes?
Ok?
That´s great. Thank you Mike for the explanation. Now I´m also able to do Q.5! 🙂
Regarding explanation of how arrive at the amount of shares at full price we would have to issue in order to raise the same amount of cash than at exercise price, being the difference between that figure and the options figure, free shares, I´m afraid I haven´t seen explanation of that either on the course notes or on answers to example questions.
Regards,
Isabel
Top line in the workings goes from left to right:
Number of options, exercise price, amount received
Second line in the workings goes from right to left:
Amount received, mid market value, number of shares to be issued
Take that last figure (number to be issued) from number of options and that gives you the number of free shares
Ok?
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