CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

At the beginning of 2015, the Alaska Corporation had 2 million shares of common stock outstanding and no preferred stock. At the end of August, 2015, Alaska issued 600,000 new shares of common stock. If Alaska reported net income equal to $8.8 million, what was the firm's earnings per share for 2015?

A. $3.38
B. $3.67
C. $4.00
Explanation: EPS = earnings available to common shareholders divided by the weighted average number of common shares outstanding. With no preferred shareholders, all net income is available to the common shareholders. The weighted average number of shares outstanding equals the original 2 million shares plus 4/12 of the additional 600,000 shares. The 4/12 weight is used because the new shares were only outstanding 4 months of the year. Thus, EPS = $8.8 million / [2 million + (4/12)(600,000)] = 8.8/2.2 = $4.00.

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