Treasury Stock Method

B Company has 5000 shares outstanding all year. B had 2000 outstanding warrants all year, convertible into one share each at $20 per share. The year-end price of B stock was $40, and the average stock price was $30. What effect will these warrants have on the weighted average number of shares?

Answer:
If the warrants are exercised, the company will receive 2000*$20=$40000 and issue 2000 new shares. The treasury stock method assumes the company uses these funds to repurchase shares at the average market price of $30. The company would repurchase $40000/$30=1333 shares. Net shares issued would be 2000-1333=667 shares.

从此题可以理解期权(warrants/options)的部分成分。期权可以理解为期望和权力，即对期望值履行权力和义务。期权分为两种，一种为看涨期权，一种为看跌(看空)期权。通俗点讲，如果对期望值，即涨跌估计正确，购入的相应的期权就会盈利(也属于对冲基金的范畴)。从期权的角度看本题 $20<$30<$40，明显是属于购买了看跌期权，可实际情况却是股票升值。在此时，可以放弃对看跌行使权利，即放弃转换为股票，因为$20<$30，原本可以转换成2000股的期权，现在却只能转换为1333股。放弃转换只损失购买期权的成本，放弃转换的权力，从而将损失减少到最小。从期权角度来讲，此题是不理性的，分明知道履行权力会损失更大。但是本题的目的是为了介绍Treasury stock method，运用这种方法必须满足两种假设条件：1.从期权转换出来的资金或这证券必须用于回购本公司的股票。2.出售期权的股票价值必须遵守市场平均价格。如果从期权角度讲，理性地放弃回购公司股票的话，就不会满足假设条件1，也就没有介绍此方法的必要了。