Given 100 shares at $10 each and 10 options at an exercise price of $5, what is the fully diluted equity value?

• A. $1,000
• B. $1,050
• C. $1,100
• D. $1,200

Answer: (B)

To determine the fully diluted equity value, you'll want to consider both the existing shares and the potential shares that can be created from options.

Initially, you have 100 shares valued at $10 each, equating to a total value of $1,000 (100 shares x $10).

Next, you have 10 options that can be exercised at an exercise price of $5. When these options are exercised, they will lead to the creation of additional shares. To understand how these options affect the equity value, calculate the proceeds from the exercise of the options: you receive $5 for each of the 10 options exercised, yielding $50 ($5 x 10 options).

These $50 in cash from the exercise will then contribute to the overall equity value. The total shares after exercising these options would be 110 shares (100 existing shares + 10 new shares from options).

The total equity value after accounting for the cash received from the options exercise and the value of the new shares is calculated as follows:

1. Total value from shares = 110 shares x $10/share = $1,100.

2. Add the cash from the options = $1,100 + $50 = $1,100.

Thus, the fully