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Basic Question 6 of 40
Last year, the AKB Company had net income equal to $5 million. Combined state and local taxes were 45 percent. The firm paid $1 million to its 1 million common shareholders and $250,000 to 100,000 preferred shareholders. What was AKB's earnings per share (EPS) last year?
B. $3.75
C. $4.75
A. $2.25
B. $3.75
C. $4.75
User Contributed Comments 11
| User | Comment |
|---|---|
| kalps | Under US GAAP Net income does not equalt the payment of dividneds, hence the pref fivs will need to be subtracted to get the net income available to ordinary shareholders |
| hallow | It should be $4750000/1000000 = $4.75. |
| Done | What happen to the taxes? You don't need it? |
| sally | notice the net income: tax has been excluded from it. |
| mordja | Mention of tax and the amount paid to ordinary shareholders are red herrings. |
| yael | Net Income means the amount is already net of taxes. |
| meghanchloe | Good one yael! |
| jpducros | In that type of question, you'll only need the tax rate if you have convertible Bonds, to calculate the impact of the tax on the interest. Otherwise delete that info. |
| cleopatraliao | Also the denominator is only concerning about common shares outstanding but does not include no. of preference stock right because it hasn't been converted yet...?am i correct? |
| majesty | Only new in this question for me is idomatic expression "Red Herring" |
| johntan1979 | Spell idiomatic like an idiot |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe how earnings per share is calculated and calculate and interpret a company's basic and diluted earnings per share for companies with simple and complex capital structures including those with antidilutive securities
CFA® 2025 Level I Curriculum, Volume 2, Module 2.