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

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 :
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

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

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

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

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

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

Note that we are basing the average annual earnings per share on the number of shares at the end of the year.

Thus, when the number of shares was doubled, from 5,000,000 to 10,000,000, the per-share earnings from the first 9 months had to be halved; thus

(7.2/2) + 1.25 = 3.6 + 1.25 = 4.85.

Answer: E

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.

Bunuel
Is this correct?
I did wt. avg for 9 month earnings and 3 month earnings.

Wt avg EPS= (7.2 x 5 x 3 + 1.25 x 10 )/(5x3+10)=121.5/25=4.86

5,000,000 shares earned $7.20 per share for the first 9 months of operation (not per month, not per quarter, during the entire 9 months period). So, you should not multiply by 3.
10,000,000 shares earned $1.25 per share for the next 3 months of operation (not per month, not per quarter, during the entire 3 months period).