[Rohan KumarParticipant]

For 2009,flamingo products had net income of USD 1,000,000 . At 1 January 2009, there were 1,000,000 shares outstanding. On 1st July 2009,the company issued 100,000 new shares for USD 20 per share . T

For 2009,flamingo products had net income of USD 1,000,000 . At 1 January 2009, there were 1,000,000 shares outstanding. On 1st July 2009,the company issued 100,000 new shares for USD 20 per share . The company paid USD 200,000 in dividends to common shareholders .what is flamingo’s basic earning per share for 2009?

A. USD 0.80

B. USD 0.91

C. USD 0.95

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[Madhu Chandarasekaran, CFAKeymaster]

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)

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