Rosenbaum IB - Fully Diluted Shares Outstanding
Hi Monkeys,
I have a question about Rosenbaum's Fully Diluted Shares Outstanding discussion. He writes: "As the strike price is lower than the current market price, the number of shares repurchased is less than the additional shares outstanding from exercises options (all good until here). This results in a net issuance of shares, which is dilutive (???)." (Rosenbaum, p. 29).
My 3 questions:
1) What exactly are the "net new shares from options"?
2) Why does the company need to issue new shares when exercising an option?
3) I don't understand in what circumstances corporations may perform this type of transaction and why.
1 and 2 -You should look at the definition of options - I think you are missing some crucial knowledge.
3 - Companies issue options as part of stock based compensation.
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