2BP Sosa Diet Supplements had earnin... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 2BP (page 48)

Sosa Diet Supplements had earnings after taxes of $800,000 in 20X1 with 200,000 shares of stock outstanding. On January 1, 20X2, the firm issued 50,000 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

Earning per share of Sosa Diet Supplements for the year ending:

20X1: $4

20X2: $4.16

Step by step solution

Calculation of EPS for the year 20X1

$E P S = \frac{E a r n i n g a f t e r t a x}{N o . o f s h a r e s o u t s \tan d i n g} = \frac{$ 800, 000}{200, 000} = $ 4$

Calculation of EPS for the year 20X2

$E P S = \frac{E a r n i n g a f t e r t a x (1 + i n c r e a s e i n e a r n i n g)}{N o . o f s h a r e s o u t s \tan d i n g + N o . o f s h a r e s i s s u e d} = \frac{$ 800, 000 (1 + 30 %)}{200, 000 + 50, 000} = \frac{$ 1, 040, 000}{250, 000} = $ 4.16$

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Lenow		Hall
Debt @ 10%	\(100,000	Debt @ 10%	\)200,000
Common stock, \(10 par	200,000	Common stock, \)10 par	100,000
Total	\(300,000	Total	\)300,000
Shares	20,000	Common shares	10,000

March	\(41,000
April	50,000
May	32,000
June	47,000
July	58,000
August	62,000

September (actual)	\(70,000
Fourth Quarter
October	\)60,000
November	55,000
December	80,000

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Short Answer

Step by step solution

Calculation of EPS for the year 20X1

Calculation of EPS for the year 20X2

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