mouse123

The SSP Company had 5 million shares outstanding on January 1. On February 15 the board of directors approved a 3:2 stock split, effective April 1. What is the weighted average number of shares outstanding for the SSP Company for year-end?

A) 6,875,000 shares.

B) 7,500,000 shares.

C) 5,625,000 shares.

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Stock splits and stock dividends are applied to all shares that existed at the beginning of the period and shares that were issued or repurchased during the period, but prior to the split or dividend. For SSP, the 5 million beginning-of-year shares outstanding are adjusted to 7.5 million shares (5.0 × 3/2) as a result of the 3:2 split.

mouse123

Zimmer Co. had the following common shares outstanding:

• January 1, 2003: 50,000
• October 1, 2003: Issued 20,000 shares
• March 1, 2004: Issued a 10% stock dividend
• July 1, 2004: Declared a 2 for 1 stock split
• October 1, 2004: Repurchased 30,000 shares

Calculate the weighted average number of common shares outstanding for 2003 and 2004.

2003

2004

A) 55,000 124,500

B) 55,000 146,500

C) 10,000 124,000

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For year 2003:
50,000 × 12 = 600,000
20,000 × 3 = 60,000
660,000/12 = 55,000
For year 2004:
70,000 × 1.1 × 2 = 154,000 × 12 = 1,848,000
(30,000) × 3 = (90,000)
1,758,000 / 12 = 146,500

mouse123

At the beginning of this year Aristotle Co. had 400,000 shares of common stock outstanding. During the year, Aristotle paid a 10 percent stock dividend on May 31, issued 90,000 new common shares on June 30, and repurchased 12,000 shares on December 1. The number of shares Aristotle should use in computing earnings per share at the end of the year is:

A) 475,000.

B) 484,000.

C) 476,000.

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[400,000 shares × 12 months + 40,000 × 12 months + 90,000 × 6 months - (12,000 × 1 months)] divided by 12 = 484,000 shares.

mouse123

Robinson Company had 1 million shares outstanding at the beginning of the year. On April 1, Robinson issued an additional 300,000 shares. On July 1, Robinson issued 200,000 more shares. What is Robinson's weighted average number of shares outstanding for the calculation of earnings per share?

A) 1,500,000 shares.

B) 1,200,000 shares.

C) 1,325,000 shares.

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Weighted average shares = 1,000,000 + (0.75) 300,000 + (0.5) 200,000 = 1,325,000 shares

mouse123

At the beginning of 2004, Osami Corporation had 1.4 million shares of common stock outstanding and no preferred stock. At the end of August 2004, Osami issued 1.2 million new shares of common stock. If Osami reported net income equal to $7.2 million, what were its earnings per share (EPS) for 2004?

A) $4.00.

B) $3.33.

C) $2.77.

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The new shares were only outstanding 4 months of the year. Thus, the weighted average number of shares outstanding is [1.4 + (4/12)(1.2)] million = 1.8 million shares. So basic EPS = $7.2 million / 1.8 million = $4.00.

mouse123

The following information pertains the QRK Company:

• One million shares of common stock outstanding at the beginning of 2005.
• 200,000 shares issued on the last day of March.
• 500,000 shares issued on the last day of June.
• 800,000 shares issued on the last day of September.

What is the number of shares that should be used to compute 2005 earnings per share for the QRK Company?

A) 2.5 million.

B) 1.9 million.

C) 1.6 million.

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The weighted average number of common shares outstanding is the number of shares outstanding during the year weighted by the portion of the year they were outstanding. For the QRK Company, the weighted number of shares outstanding is the original one million shares plus 150,000 shares for the end-of-March issue (= 200,000 × 9/12), plus 250,000 shares for the end-of-June issue (= 500,000 × 6/12), plus 200,000 shares for the end-of-September issue (= 800,000 × 3/12), or 1.6 million shares.

mouse123

The ZZT Company went public on June 1, 2004, by issuing 25 million shares of common stock. In 2005, the firm raised additional capital by issuing 2 million shares of preferred stock. What is the weighted average number of common shares outstanding for the year ending December 31, 2005?

A) 14,583,333.

B) 25,000,000.

C) 10,416,667.

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The weighted average number of common shares outstanding is the number of shares outstanding during the year weighted by the portion of the year they were outstanding. Since no new common shares were issued in 2005, and there were 25 million shares at the end of 2004, there are 25 million shares at the end of 2005. Note that the preferred stock shares do not affect the common shares outstanding.

mouse123

A simple capital structure is least likely to include:

A) treasury stock.

B) convertible bonds.

C) callable preferred stock.

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Simple capital structures do not include any potentially dilutive securities (a security that could decrease earnings per share if exercised). Convertible bonds are potentially dilutive.

mouse123

Ajax Company has a simple capital structure. Which of the following will NOT be found on its balance sheet?

A) 6%, $50 par value callable bond.

B) 3%, $100 par value convertible bond.

C) 10%, secured mortgage bond denominated in Swiss francs.

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If convertible bonds exist, the firm has a complex capital structure.

mouse123

An analyst has gathered the following information about a company:

• 110,000 shares of common outstanding at the beginning of the year.
• The company repurchases 20,000 of its own common shares on July 1.
• Net income is $300,000 for the year.
• 10,000 shares of existing 10 percent cumulative $100 par preferred outstanding that is not in arrears at the beginning or ending of the year.
• The company also has $1 million in 10 percent callable bonds outstanding.
• The company has declared a $0.50 dividend on the common.

What is the company's basic Earnings Per Share?

A) $2.00.

B) $3.00.

C) $1.00.

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Interest is already deducted from earnings.