What is the fully diluted equity value for a company with 100 shares outstanding at $10 each and 10 options at an exercise price of $15 each?

• A. $1,000
• B. $1,200
• C. $1,500
• D. $1,000,000

Answer: (A)

To determine the fully diluted equity value, you first need to calculate the current equity value based on the shares outstanding. With 100 shares at $10 each, the equity value can be calculated as follows:

Equity Value = Number of Shares Outstanding × Share Price

Equity Value = 100 shares × $10 = $1,000

Next, you need to consider the impact of the options on the equity value. There are 10 options with an exercise price of $15 each. Since the current share price of $10 is below the exercise price of the options, these options would not be exercised because it is not beneficial for the option holders to purchase shares at a price higher than the market price. Therefore, the options do not contribute to the fully diluted share count or value in this scenario.

Since the options do not dilute the share count, the fully diluted equity value remains equal to the current equity value calculated above, which is $1,000. The other options presented are either based on incorrect calculations or interpretations of the options’ impact on the stock value.