M03-27

Official Solution:

A corporation with 5,000,000 shares of publicly listed stock reported total earnings of $7.20 per share for the first 9 months of operation. During the final quarter the number of publicly listed shares was increased to 10,000,000 shares, and fourth quarter earnings were reported as $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


To find the average annual earnings per share based on the number of shares at the end of the year, we first need to determine the total earnings for the whole year and then divide it by the number of shares at the end of the year.

The earnings for the first 9 months in millions of dollars \(=5*7.2=36\);

The earnings for the 4th quarter in millions of dollars \(=10*1.25 = 12.5\) (since for the 4th quarter, the number of publicly listed shares increased to 10,000,000);

The total earnings for the whole year in millions of dollars \(=36 + 12.5 = 48.5\);

Finally, the average annual earnings per share can be calculated by dividing the total earnings by the number of shares at the end of the year: \(\frac{48.5}{10} = 4.85\).


Answer: E