To calculate
basic earnings per share (EPS), we use the formula:
Basic EPS=Net Income – Dividends on Preferred Stock / Weighted Average Shares Outstanding
To calculate
basic earnings per share (EPS), we use the formula:
Basic EPS=Net Income – Dividends on Preferred Stock / Weighted Average Shares Outstanding
Step 1: Identify the components
- Net Income: USD 1,000,000
- Dividends: USD 200,000 (paid to common shareholders; no preferred dividends are mentioned, so we use the full net income).
- Shares Outstanding:
- At the start of the year: 1,000,000 shares.
- New shares issued: 100,000 shares on 1 July 2009.
Step 2: Compute the weighted average shares outstanding
The new shares were issued halfway through the year, so they were outstanding for 6 months (or 0.5 of the year).
Weighted Average Shares= 1,000,000 + 50,000 (0.5*100K) = 1,050,000
Step 3: Calculate Basic EPS
Basic EPS=1,000,000/1,050,000≈0.9524 USD/share
Final Answer:
The basic EPS for Flamingo Products for 2009 is USD 0.95 per share (Choice C)
Madhusudan Chandarasekaran, CFA, FRM