Mandalay had outstanding stock options of 10 million shares at the end of fiscal year 2001 (outstanding common stock was 68 million). Mandalay had reported net income of $54 million and net income-pro forma of $43 million. This means that Mandalay: a. The company is obviously near bankruptcy b. The compensation expense associated with stock options reduced earnings by almost 50%, but potential dilution was negligible c. The compensation expense associated with stock options increased earnings and had almost no effect on stock dilution potential d. The compensation expense associated with stock options reduced earnings by over 20% & potential dilution was almost 15%

Question

Vincent Curtis

Business

3 May, 14:42

Mandalay had outstanding stock options of 10 million shares at the end of fiscal year 2001 (outstanding common stock was 68 million). Mandalay had reported net income of $54 million and net income-pro forma of $43 million. This means that Mandalay: a. The company is obviously near bankruptcy b. The compensation expense associated with stock options reduced earnings by almost 50%, but potential dilution was negligible c. The compensation expense associated with stock options increased earnings and had almost no effect on stock dilution potential d. The compensation expense associated with stock options reduced earnings by over 20% & potential dilution was almost 15%

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Javon · Answer 1

d. The compensation expense associated with stock options reduced earnings by over 20% & potential dilution was almost 15%

Explanation:

The net income-pro forma is to the net income projected in future after all the stock options have been utilized.

The net income reduced to $43 million from $54 million

Reduction = 20%.

The number of shares increased by the number of stock options

10 million ≈ 15% of 68 million.