Can you answer this IB interview question?

If a company has a $15 share price, 10K shares outstanding, 5K options at a $12 strike price, and 5K RSUs, what are the fully diluted shares?

The fully diluted shares are 16,000: 10,000 basic shares plus 1,000 net new shares from the options (using the treasury stock method) plus 5,000 RSUs added in full.

Intuition

The Treasury Stock Method assumes option holders exercise and the company uses the cash proceeds to buy back shares at market price, so only the net dilutive portion counts. RSUs have no strike price, so the company receives no proceeds and cannot offset any dilution — they convert 1-for-1 into shares.

Watch

A common trap is treating RSUs the same as options under TSM. RSUs have a $0 strike price, meaning there are zero proceeds to buy back shares, so they are fully dilutive. Also watch for out-of-the-money options (strike > market price), which would be excluded entirely as anti-dilutive.

Deep Dive

Calculate the fully diluted share count using the Treasury Stock Method (TSM) for options and adding RSUs.

Given:

Item	Value
Share price	$15
Basic shares outstanding	10,000
Options	5,000 at $12 strike
RSUs	5,000

Step 1: Options — Treasury Stock Method

Options are in-the-money ($12 strike < $15 market price), so they are dilutive.

Gross shares from exercise = 5, 000

Proceeds raised = 5, 000 \times $ 12 = $ 60, 000

Shares repurchased with proceeds = \frac{$ 60 , 000}{$ 15} = 4, 000

Net new shares from options = 5, 000 - 4, 000 = 1, 000

Key intuition: you only add the spread shares — the company uses the exercise proceeds to buy back stock at market price, so only the 'unfunded' portion dilutes.

Step 2: RSUs

RSUs have no strike price — there are no proceeds to buy back shares. All 5,000 are added directly.

Net new shares from RSUs = 5, 000

Step 3: Fully Diluted Shares

Fully diluted shares = 10, 000 + 1, 000 + 5, 000 = 16, 000

Shortcut: For options, net dilution = $Number of options \times \frac{Market Price - Strike Price}{Market Price}$ . Here: $5, 000 \times \frac{3}{15} = 1, 000$ . RSUs always add 1-for-1.