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ABC Ltd. issued 20 lakh shares and 1 lakh warrants exercisable at ₹30. Average market price ₹37. Dilution per warrant for diluted EPS purposes:
AZero — warrants out of the money
B₹37 (full average market price)
C₹30 (exercise price)
D₹7 per share (= ₹37 − ₹30); 'free' shares added = 1,00,000 × (37−30)/37
Answer & Solution
Correct answer: D. ₹7 per share (= ₹37 − ₹30); 'free' shares added = 1,00,000 × (37−30)/37
Treasury stock: 1,00,000 warrants × ₹30 = ₹30 lakh proceeds → buys ₹30,00,000/₹37 ≈ 81,081 shares back. 'Free' shares = 1,00,000 − 81,081 = 18,919. Equivalently dilution-per-warrant = ₹7/₹37 × 1,00,000.
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