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Chapter 2: 1BP (page 47)

Frantic Fast Foods had earnings after taxes of $420,000 in 20X1 with 309,000 shares outstanding. On January 1, 20X2, the firm issued 20,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.

a. Compute earnings per share for the year 20X1.

b. Compute earnings per share for the year 20X2.

Short Answer

Expert verified

Earnings per share for the year

20X1: $1.36

20X2: $1.66

Step by step solution

01

Calculation of EPS for 20X1

 EPS=EarningaftertaxNo.ofsharesoutstanding=$420,000309,000=$1.36

02

Calculation of EPS for 20X2

EPS=Earningaftertax1+increaseinearningNo.ofsharesoutstanding+No.ofsharesissued=$420,0001+30%309,000+20,000=$1.66

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Most popular questions from this chapter

Polly Esther Dress Shops Inc. can open a new store that will do an annual sales volume of $837,900. It will turn over its assets 1.9 times per year. The profit margin on sales will be 8 percent. What would net income and return on assets (investment) be for the year?

Stilley Corporation had earnings after taxes of \(436,000 in 20X2 with 200,000 shares outstanding. The stock price was \)42.00. In 20X3, earnings after taxes declined to \(206,000 with the same 200,000 shares outstanding. The stock price declined to \)27.80.

a. Compute earnings per share and the P/E ratio for 20X2.

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c. Give a general explanation of why the P/E changed. You might want to

consult the text to explain this surprising result.

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