An analyst has gathered the following information about a company: 110,000 shares of common outstanding at...
An analyst has gathered the following information about a company:
110,000 shares of common outstanding at the beginning of the year
The company has a 3-for-1 stock split on March 1
The company repurchases 20,000 of its own common shares on July 1
Net income is $200,000 of the year
10,000 convertible preferred shares with 10 percent dividend rate and $100 par value per share
The company also has $1 million in 10 percent callable bonds outstanding
The company has declared a $0.50 dividend on the common shares
What is the company's basic earnings per share?
Homework Answers
Basic Earnings per share = (Net Income - Preferred Dividends) / Weighted average number of shares outstanding
Net income = $300,000
Less: Preferred dividend = $100,000 ($1,000,000 * 10%)
Income available to Common shareholders = $200,000
Computation of Weighted average number of shares outstanding
= 110,000 - (20,000 / 2)
= 100,000 shares
Basic Earnings per share = $200,000 / 100,000
Basic Earnings per share = $2
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