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# A corporation with 5,000,000 shares of publicly traded stock

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Senior Manager
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A corporation with 5,000,000 shares of publicly traded stock [#permalink]  06 Oct 2010, 08:47
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35% (medium)

Question Stats:

66% (03:35) correct 33% (02:05) wrong based on 27 sessions
A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at$1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?

A. 1.75
B. 2.40
C. 3.15
D. 3.60
E. 4.85

[Reveal] Spoiler:
I basically calculated the annual earnings by multiplying 7.20 with 5*10^6 which is 36 and multiplying 10*10^6 with 1.25 which is 12.5.
Now to find the average, we have to divide the total 48.5 with the total number of shares which is 15 million here. But the solution says divide the total rate i.e. 48.5 with the total outstanding shares which is 10 Million here. Can someone explain the solution for the problem.
TIA
[Reveal] Spoiler: OA
Senior Manager
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Re: GMAT CLUB TEST - Shares and percentages [#permalink]  06 Oct 2010, 08:47
Sorry its not a percentage problem....Apologies for the wrong heading
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Re: GMAT CLUB TEST - Shares and percentages [#permalink]  06 Oct 2010, 08:56
Expert's post
psychomath wrote:
A corporation with 5,000,000 shares of publicly traded stock reported total earnings of $7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at$1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?
A. 1.75
B. 2.40
C. 3.15
D. 3.60
E. 4.85

OA :
[Reveal] Spoiler:
E

I basically calculated the annual earnings by multiplying 7.20 with 5*10^6 which is 36 and multiplying 10*10^6 with 1.25 which is 12.5.
Now to find the average, we have to divide the total 48.5 with the total number of shares which is 15 million here. But the solution says divide the total rate i.e. 48.5 with the total outstanding shares which is 10 Million here. Can someone explain the solution for the problem.
TIA

Earnings for 9 months - 5*7.2=36;
Earnings for 4th quarter - 10*1.25=12.5;

Total earning for a year - 36+12.5=48.5;

The average annual earnings per share - \frac{48.5}{10}=4.85.

Note that # of shares increased to 10 not by 10, so total shares by the end of the year is 10 not 15.
_________________
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Re: GMAT CLUB TEST - Shares and percentages [#permalink]  06 Oct 2010, 09:07
OK one small doubt here....While calculating the average, dont we have to divide by THE TOTAL NUMBER OF SHARES ie for 9 months it is 5 million and then it increases to 10, so the total number of shares is 15 million ? Or am i confusing myself badly somewhere
Math Expert
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Kudos [?]: 15456 [1] , given: 1551

Re: GMAT CLUB TEST - Shares and percentages [#permalink]  06 Oct 2010, 09:12
1
KUDOS
Expert's post
psychomath wrote:
OK one small doubt here....While calculating the average, dont we have to divide by THE TOTAL NUMBER OF SHARES ie for 9 months it is 5 million and then it increases to 10, so the total number of shares is 15 million ? Or am i confusing myself badly somewhere

# of shares increased to 10 not by 10, so total shares by the end of the year is 10 not 15.

Or in another words: # of shares was 5 and then another 5 was issued thus total # of shares became 10 not 15.
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Re: GMAT CLUB TEST - Shares and percentages [#permalink]  06 Oct 2010, 09:14
Aaahhh...Gotcha!....Damn my understanding and my bird brain...Thanks a ton Bunuel! Kudos!
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Re: GMAT CLUB TEST - Shares and percentages [#permalink]  10 Sep 2012, 20:20
Hi Guys,

For this problem why we need to multiply 1.25 by 10 when the existing 5 million shares has already been accounted for in the first 9 months. So my doubt is for the last quarter we just need to consider just the additional 5 millions shares and multiply it by 1.25. Could you please clarify my doubt ?

Thanks,

harikris
Math Expert
Joined: 02 Sep 2009
Posts: 15070
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Kudos [?]: 15456 [0], given: 1551

Re: GMAT CLUB TEST - Shares and percentages [#permalink]  11 Sep 2012, 01:41
Expert's post
harikris wrote:
Hi Guys,

For this problem why we need to multiply 1.25 by 10 when the existing 5 million shares has already been accounted for in the first 9 months. So my doubt is for the last quarter we just need to consider just the additional 5 millions shares and multiply it by 1.25. Could you please clarify my doubt ?

Thanks,

harikris

We are told that in the fourth quarter, when there were 10,000,000 shares, earnings were $1.25 per share, so total earnings 1.25*10,000,000. Also discussed here: m03-q27-74196.html _________________ Director Joined: 06 Sep 2013 Posts: 520 Location: United States Concentration: Finance, General Management GMAT 1: 690 Q45 V40 GPA: 3.5 WE: Corporate Finance (Investment Banking) Followers: 1 Kudos [?]: 42 [0], given: 33 Re: A corporation with 5,000,000 shares of publicly traded stock [#permalink] 13 Nov 2013, 10:22 psychomath wrote: A corporation with 5,000,000 shares of publicly traded stock reported total earnings of$7.20 per share for the first 9 months of operation. If during the final quarter, the number of publicly listed shares was increased to 10,000,000, and fourth quarter earnings were reported at \$1.25 per share, what are the average annual earnings per share based on the number of shares at the end of the year?

A. 1.75
B. 2.40
C. 3.15
D. 3.60
E. 4.85

[Reveal] Spoiler:
I basically calculated the annual earnings by multiplying 7.20 with 5*10^6 which is 36 and multiplying 10*10^6 with 1.25 which is 12.5.
Now to find the average, we have to divide the total 48.5 with the total number of shares which is 15 million here. But the solution says divide the total rate i.e. 48.5 with the total outstanding shares which is 10 Million here. Can someone explain the solution for the problem.
TIA

Fairly straightforward.

5000000(7.2)*1000000(1.25) / 1000000

7.2/2 + 1.25 = 4.85

Kudos Rain!
Cheers
J
Re: A corporation with 5,000,000 shares of publicly traded stock   [#permalink] 13 Nov 2013, 10:22
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# A corporation with 5,000,000 shares of publicly traded stock

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