Question 2 Calculate the "fully diluted shares outstanding" for the following potential target company. The target company's shares are trading in the market at $8.00. The potential acquirer has modelled that they are willing to pay $12.00 per share in an acquisition. The target company has basic shares outstanding of 100 million. The target company has employee share options outstanding, as outlined in Figure 1. The target also has convertible bonds, with the following note in its most recent financial statements: "the Company has outstanding $200 million of 5.25% convertible notes which are included in long-term debt due within 1 year, on the company's consolidated balance sheet. The notes are payable in cash at maturity unless holders exercise their option to convert the notes into shares of common stock. The initial conversion rate, provided under the terms of the notes, is 85.4908 shares of common stock per $1,000 principal amount of notes." Stock Options Outstanding Stock Options Exercisable Options Number Outstanding Weighted Average Number Outstanding Weighted Average Tranches in millions Exercise Price/Share in millions Exercise Price/Share 8 8.5 2 8.6 12 9.2 4 9.1 9 11.4 7 11.9 87 13.1 71 12.4 43 16.4 36 16.55 23 18.9 15 18.61 16 20.2 14 20.6 68 25.7 47 25.4 266 196 Figure 1