Reference no: EM133040156

Question - Zania Plc earns profits of $3,000,000 for the year ended December 31, 2020. Zania has 1,200,000 shares outstanding during the year. Zania paid preference dividends amounting to $100,000 in 2020. The average market price of Zania's stock over the year was $40. Zania has 15,000 stock options outstanding, which have an exercise price of $25.

Required -

i) Briefly explained the treasury stock method for stock options in calculating the effective total stocks outstanding.

ii) Calculate the company's basic earnings per share.

iii) Calculate the cash proceeds from exercising the stock options.

iv) Calculate the number of shares that could be purchased at the average market price from the proceeds from (iii) above.

v) Calculate the number of net increase in shares outstanding from the exercise of the stock options.

vi) Calculate the diluted earnings per share.

vii) Explain briefly, if the stock options have diluted capacity.