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A corporation with 5,000,000 shares of publicly...

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A corporation with 5,000,000 shares of publicly...

by AAPL » Thu Mar 29, 2018 6:07 am
A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.2 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed share 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. 240
C. 3.15
D. 360
E. 4.85

The OA is E.

I basically calculated the annual earnings by multiplying 7.20 with 5*10^6 which are 36 and multiplying 10*10^6 with 1.25 which is 12.5.

Now to find the average, we have to divide the total 48.5 with the total number of shares which is 15 million here. But the solution says divide the total rate i.e. 48.5 with the total outstanding shares which is 10 Million here. Can someone explain the solution for the problem? Thanks!
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by deloitte247 » Sat Mar 31, 2018 1:05 pm
$$5,000,000\ shares\ to\ 10,000,000$$
$$=\frac{\left(15,000,000\right)}{10,000,000}=\frac{1}{2}=1:2$$
$$Total\ earnings\ for\ 1\ share\ that\ earns\ \text{}\text{7.2= }\text{}7.20$$
Total earnings for 2 shares that each earn $1.25= $1.25*2 =$2.50
At the end of the year, average annual earnings for the 2 shares = $$\frac{\left(total\ earnings\right)}{number\ of\ shares}$$
=($7.20 + $2.50) / 2 =$9.70/2 = $4.85

Option E
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by ErikaPrepScholar » Sat Mar 31, 2018 3:14 pm
The key thing to notice here is that the problem does not say that the number of shares increased BY 10,000,000 - it says that the number of shares increased TO 10,000,000. So at the end of the year, there are only 10,000,000 shares.

So for the first 9 months, the corporation earned money on all 5,000,000 publicly listed shares. It then added 5,000,000 publicly listed shares, making their total publicly listed shares 10,000,000. For the last 3 months, it earned money on all of those 10,000,000 publicly listed shares (both the 5,000,000 they previously owned and the added 5,000,000).
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by Jeff@TargetTestPrep » Thu Apr 05, 2018 10:16 am
AAPL wrote:A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.2 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed share 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. 240
C. 3.15
D. 360
E. 4.85
Note that we are basing the average annual earnings per share on the number of shares at the end of the year.

Thus, when the number of shares was doubled, from 5,000,000 to 10,000,000, the per-share earnings from the first 9 months had to be halved; thus

(7.2/2) + 1.25 = 3.6 + 1.25 = 4.85.

Answer: E

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