CORPORATIONS.....

smclean23 · Posted: Wed Jul 16, 2008 3:15 pm Post subject: CORPORATIONS.....

A corporation with 5,000,000 shares of publicly listed stock reported total earnings of $7.20 per share for the first 9 months of operation. During the final quarter the number of publicly listed shares was increased to 10,000,000 shares, and fourth quarter earnings were reported as $1.25 per share. What are the average annual earnings per share based on the number of shares at the end of the year?
(A) $1.83
(B) $2.43
(C) $4.85
(D) $8.45
(E) $9.70

pepeprepa · Posted: Thu Jul 17, 2008 3:29 am Post subject:

(5m x 7,2 + 10m x 1,25) / 10m
= 3,6 + 1,25
= 4,85

VP_Jim · Posted: Fri Jul 18, 2008 1:40 pm Post subject:

Here's an non-equational (is that a word?) way to do this problem. Just think logically:

Essentially, the only problem we have is that we had 5 million shares at the beginning of the year and 10 million at the end. We want the earnings per share for the WHOLE YEAR based on 10 million shares.

So, what if we had 10 million shares for the first 9 months? The earnings per share for that period would be cut in half, so $3.60.

Now, we just have to add $3.60 + $1.25, and there's our answer.