When using the Treasury Stock Method for options, what is assumed about shares?

The Treasury Stock Method is a widely recognized approach for calculating the impact of stock options on a company’s share count. This method assumes that when options are exercised, the company receives cash from the holders of those options. This cash influx is then used to buy back shares on the open market, effectively offsetting the dilution that would occur from the new shares issued upon option exercise.

By assuming that the cash received from option exercises is used to repurchase shares, the method allows for a more accurate representation of the net increase in total shares outstanding. This is particularly important for analysts and investors as it helps them assess the company's earnings per share (EPS) and overall share dilution.

In contrast, the other options do not align with the principles of the Treasury Stock Method. The method doesn't involve using dividends to repurchase shares, and it doesn't assume the options will remain outstanding indefinitely or that they will merely dilute shares during an acquisition without considering the offset by repurchases.