To compute the premium, premium per share is multiplied by which shares?

To compute the premium, premium per share is multiplied by which shares?

• A. Basic shares outstanding
• B. Fully diluted only
• C. Shares outstanding at year end
• D. Diluted shares outstanding

Answer: (D)

When calculating the total premium for an acquisition, you multiply the per-share premium by the number of shares that could exist if all dilutive securities are exercised. That is diluted shares outstanding, which includes basic shares plus shares that could be issued from options, warrants, and convertible instruments. Using basic shares outstanding would miss potential additional shares and understate the total premium; year-end shares are just a snapshot and may not reflect possible dilution; and “fully diluted” is a condition describing the count, whereas diluted shares outstanding is the actual share count used for this calculation.

When calculating the total premium for an acquisition, you multiply the per-share premium by the number of shares that could exist if all dilutive securities are exercised. That is diluted shares outstanding, which includes basic shares plus shares that could be issued from options, warrants, and convertible instruments. Using basic shares outstanding would miss potential additional shares and understate the total premium; year-end shares are just a snapshot and may not reflect possible dilution; and “fully diluted” is a condition describing the count, whereas diluted shares outstanding is the actual share count used for this calculation.