In this workout, we're asked to calculate the diluted weighted average shares outstanding for the year ended December for Jerez using the information below. We've got lots of information given to us. We've got issued shares and then we've got shares held in treasury. So we'll have to take issued shares minus shares held in treasury and that will be our beginning outstanding shares. We've then got some shares issued during the year and we've got some options. So let's get into it. Let's start working out the diluted shares outstanding. I've already started my answer by laying out this table. At the start of the year, we need to work out our basic shares outstanding at the start. So I take the issued shares minus shares held in treasury. The issued shares is the number that have ever been issued by the company, and then shares held in treasury looks at those that have been bought back. So the number outside the company still is the net of the two. They're held at the beginning of the year, so they're gonna have a weight for all 12 months of the year and I'll change that to a percentage. We now move on to April the 30th, and there was a share issuance here of 10,000. That affects the shares going forward into May, June, et cetera. So that affects 8/12ths of the year, eight months outta 12. Change that to a percentage. On November the 30th, again, we had another share issuance, this time of 20,000. That only affects one month going forward.

So I now take each of those numbers and multiply them by their weightings. Copy that down and then sum up. My basic WASO so far is 38,733.3. We've then got the options. For the options, I'm going to use the treasury stock method, so that means I need to use that max formula. I take the max of the average share price minus the strike price, and then I close brackets and divide that by the average share price again. Lastly, I multiply that fraction by the employee stock options. I take all of that. I want the maximum of that and zero.

then if we hadn't done the maximum of all of this and zero, then this number could've been negative. If they're out of the money, the employees are not going to exercise their options, so we're not going to get this negative here. Fantastic. That gets us 5,090.9 new shares. So they are around for 12 months out of the 12, so 100%. I now take the number of new shares, multiply that by the 100%, and that now gives us our diluted figure. I take the basic WASO, add on the number of new shares created by the options to give us 43,824.2. I'd really like to prove that 5,090.9 figure to you, so let's go through a few questions to see in a bit more detail. First of all, are the options in the money? Well, the employees need to hand over 4.20 in order to get a share worth 6.60. Are they going to exercise? Yes, they are. These are in the money. They're going to make an instant profit of 2.40. So are they in the money? Yes. Are options dilutive? Options are always dilutive. Should they be included in the diluted share account? Yes, they should.

So how much money will Jerez receive on exercise? Well, each of the employees are gonna hand over 4.20 for each of the options, and there are 14,000 options, so Jerez will receive 58,800. Next, how many shares can Jerez buy back with this money? Well, it takes that money and then it buys each of the shares for 6.60, so it can buy back 8,909.1.

How many shares must Jerez issue for the options? Well, it has to issue 14,000.

So what is the net increase in the share counts? If they need to issue 14,000 shares, but they've only been able to purchase 8,909.1, then it needs to create 5,090.9. And that's exactly the same figure that we got above using the max formula.