If a company has 100 shares outstanding, price $10, and 10 options at an exercise price of $15, what is the fully diluted equity value?

If a company has 100 shares outstanding, price $10, and 10 options at an exercise price of $15, what is the fully diluted equity value?

• A. $900
• B. $1,100
• C. $1,000
• D. $950

Answer: (C)

Fully diluted equity value shows how much the company would be worth if all potential shares that could be created were actually issued, using the current stock price. Here, there are 100 shares outstanding and 10 options with an exercise price of 15, while the current price is 10. Since the exercise price is higher than the current price, those options are out-of-the-money and would not be exercised under current conditions, so they do not add to the share count. That means diluted shares remain 100, and the value is 100 × 10 = 1,000. If the options were in the money (exercise price below the current price), they would be included, increasing the share count and the value (e.g., 110 shares × 10 = 1,100).

Fully diluted equity value shows how much the company would be worth if all potential shares that could be created were actually issued, using the current stock price. Here, there are 100 shares outstanding and 10 options with an exercise price of 15, while the current price is 10. Since the exercise price is higher than the current price, those options are out-of-the-money and would not be exercised under current conditions, so they do not add to the share count. That means diluted shares remain 100, and the value is 100 × 10 = 1,000. If the options were in the money (exercise price below the current price), they would be included, increasing the share count and the value (e.g., 110 shares × 10 = 1,100).