CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

An analyst gathered the following information about a company:

  • 01/01/2015 - 20,000 shares issued and outstanding at the beginning of the year
  • 04/01/2015 - 5.0% stock dividend
  • 07/01/2015 - 5,000 shares repurchased
  • 10/01/2015 - 2:1 stock split

What is the company's weighted average number of shares outstanding at the end of 2015?
A. 37,000
B. 39,500
C. 45,000
Explanation: The end-of-period 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. Dividends and splits are applied to all shares issued or repurchased and all original or adjusted shares outstanding prior to the split or dividend.

Step 1) Apply the 04/01/2015 dividend to the beginning-of-year shares: Adjusted shares = 1.05 x 20,000 = 21,000.

Step 2) Apply the 10/01/2015 split to the adjusted beginning-of-year shares and the repurchase. Adjusted beginning-of-year shares = 42,000 (= 2 x 21,000). Adjusted repurchase = 10,000 (= 2 x 5,000).

Step 3) Compute the weighted average number of shares: 42,000(12/12) - 10,000(6/12) = 37,000 shares.

User Contributed Comments 11

User Comment
humphrey why is not the stock dividend weighted? the answer is 36500 in that case.
Gina it's not weighed because the repurchase occurred after the stock dividend - hence 5000 shares were taken away from the sharebase with is increased by 5%.
cswin repurchase reduces o/s stocks
aigulb 20k*1.05*2*12/12=42k
-5k*2*6/12=-5k
42-5=37
jpducros Damnit ! Stock dividend INCREASE number of shares outstanding.
homersimpson If repurchase takes on a full year effect, wouldn't it be clearer to make it 5,000*12 and adjust it on a monthly basis at the end?

BTW, does repurchase = treasury stock?
Mikehuynh Follow the way of aigulb will be easier to understand
Callie2 homersimpson - repurchase does not take on full year effect. Stock dividends and stock splits take on full year effect. The repurchase is adjusted to reflect the stock split, but still only effects the last months.
stefanov11 What's the deal with the weight on the share repurchase? Why 6/12?
GBolt93 because those shares were still outstanding for half the year. So if used to calculate EPS those shares still had earnings for half the year before being repurchased.
ocionesw Why do we have to adjust repurchase shares, if it occurs prior to stock split?
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