Hi, there. I'm happy to help with this.
This is a strangely worded problem, not entirely clear, which makes it not very GMAT-like. Questions on the GMAT leave no ambiguity.
In this problem, it says:
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.
So, if I understand this correct, that means, the total made in the first 9 months is $36 million. It's not standard to report earning/share for a three-quarter period, but apparently that's what we have here.
Then it says:
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
So, this means, $12.5 million in the fourth quarter.
That brings total annual revenues to 36 + 12.5 = $48.5 million for the year.
Then:
what are the average annual earnings per share based on the number of shares at the end of the year?
So, here, if I understand correctly, we are not taking into account how long the various numbers of shares were in existence. Rather, we are just taking the static value of 10,000,000 shares at the end of the year, and dividing total annual revenue by that. In this case,
$48.5 million/10,000,000 = $4.85
Answer =
E
Does that make sense? Let me know if you have any further questions.
Mike
