CFA Practice Question

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CFA Practice Question

The following information pertains to the QRK Company:

  • One million shares of common stock outstanding at the beginning of 2011
  • 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 2011 earnings per share for the QRK Company?
Correct Answer: 1.6 million

The weighted average number of common shares outstanding is the number of shares outstanding during the year weighted by the portion of the year in which 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, or 1.6 million shares.

User Contributed Comments 14

User Comment
haarlemmer Watch out, the last day of!!!
mikaelian Should 800,000 be multiplied by 10/12 - how did they get 200,000 for end-of-September?
mikaelian oops, sorry disregard - it's 3/12 x 800,000
bokica basicly, issued on March 31st or April 1st is the same thing??? Does March has 31 day at all :0 )?
omer123 Shares should be weighted according the number of months remaining in a year. End of March means 9 months remaining, hence, 9/12.
eb2568 since they are issued on the last day of the months, the effective date is essentially the first on the next month
tonypractice step 1:
total shares outstanding
x % of year outstanding
= weighted number of shares outstanding

step 2:
perform step 1 for each new share issue during the year [since the total shares outstanding will change]

step 3: sum the product from each step [so you get the weighted average # of shares outstanding]
bahamas check previous question for how to do it on the hp 12c, real easy that way.
johntan1979 If you do this, you get almost the same answer:

1 mil x 89/365 + 1.2 mil x 91/365 + 1.7 mil x 92/365 + 2.5 mil x 93/365
= 1.6085 mil
gill15 I wouldnt use the calculator. It's very simple math

1(12/12) + 200000(9/12) + 500000(6/12) + 800000(3/12)

math doesnt get any easier then that on a calculator
schweitzdm Thanks Gill. That explanation is so much easier to follow!
nascfa There's a mistake in the explanation, it should say 200,000 shares not 150,000.
nascfa nvm
Fortschrit Thanks Gil!
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