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

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06 Oct 2010, 09:47

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E

Difficulty:

55% (hard)

Question Stats:

55% (02:01) correct
45% (04:26) wrong based on 82 sessions

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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?

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

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

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 - \(\frac{48.5}{10}=4.85\).

Answer: E.

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]

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06 Oct 2010, 10:07

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

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.
_________________

Re: GMAT CLUB TEST - Shares and percentages [#permalink]

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10 Sep 2012, 21:20

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 ?

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.

Re: A corporation with 5,000,000 shares of publicly traded stock [#permalink]

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13 Nov 2013, 11:22

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?

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

Re: A corporation with 5,000,000 shares of publicly traded stock [#permalink]

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10 Jan 2014, 13:49

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?

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

Don't even think about solving for 5,000,000(7.2) + 10,000,000(1.25) / 10,000,000

Just check out its a weighted average so it will be (1/2)(7.2) + 1.25 = 4.85

Re: A corporation with 5,000,000 shares of publicly traded stock [#permalink]

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22 Aug 2015, 07:33

I don't think this answer here is correct. There is no relevance given to the ration of time(3 quarters vs 1 quarter). If a earning of X made on a Y shares for 9 months and an and earning of Z is made on 2Y shares for the rest 3 months, then the average for 12 months is

((X*Y*12) + (Z*2Y*3)) / (2Y*12). The answer has to be (24.1/8). Either that or the problem is not well stated. the number of months is not accounted anywhere.