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Hello
I have watched the lectures on this and I can’t really understand the logic behind the calculation of the number of free shares.
This piece of calculation: no. shares at full market value 100 x $2.50/$4.00. And why it was deduced from 100 m shares and then added to the other number of shares in the calculation of diluted esp.It is like when we say buy three items for the price of two in the shops, we are effectively getting one of the items for free. Here it is easy to identify how many free items we get as it is stated in the offer. When looking at the shares via share based payments then it is more difficult to work out the free number of shares.
We have paid for 100m shares based on the $2.50 price that we paid, so effectively the money spent is $250m to buy the 100m shares. If we paid the full price of $4 and spent the same amount of money then we’d have received a different number of shares ($250m/$4). The difference between this and the 100m is the number of free shares that we’ve received.
Thanks
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