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Earnings

by rakeshd347 » Mon Oct 14, 2013 5:54 pm
A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at $1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?

1.75
2.40
3.15
3.60
4.85
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by ganeshrkamath » Mon Oct 14, 2013 7:45 pm
rakeshd347 wrote:A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at $1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?

1.75
2.40
3.15
3.60
4.85
Total earnings in the first 3 quarters = 5,000,000 * 7.2 = 36,000,000
Total earnings in the last quarter = 10,000,000 * 1.25 = 12,500,000
Total earnings = 36m + 12.5m = 48.5m
Total number of shares = 10m
Average earnings per share = 48.5/10 = 4.85

Choose E

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by mevicks » Mon Oct 14, 2013 8:02 pm
rakeshd347 wrote:A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at $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) 1.75
B) 2.40
C) 3.15
D) 3.60
E) 4.85
First three Quarters earnings:
1 Share --> $7.20
5 * 10^6 shares --> (5 * 10^6) * 7.20

Last Quarter earnings:
(5 * 10^6) shares are added
1 share --> $1.25
5 * 10^6 shares --> $(5 * 10^6) * 1.25

Earnings Per Share for the entire quarter :
[(5 * 10^6)*7.20 + (5 * 10^6)*1.25] / (10^7) = (5 * 10^6)(7.20 + 1.25) / (10^7) = 8.45 / 2 = 4.85

Answer E

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by GMATGuruNY » Tue Oct 15, 2013 2:13 am
rakeshd347 wrote:A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at $1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?

1.75
2.40
3.15
3.60
4.85
5,000,000 shares : 10,000,000 shares = 1:2.
We can plug in ANY values that satisfy this ratio, since the problem asks only for the AVERAGE annual earnings per share.
Total earnings for 1 share that earns $7.20 = $7.20.
Total earnings for 2 shares that each earn $1.25 = $2.50.
At the end of the year, the average annual earnings for the 2 shares = (total earnings)/(number of shares) = (7.20 + 2.50)/2 = 4.85.

The correct answer is E.
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