Weighted Avg Common Shares

On this problem I think there are 2 ways to go about calculating WACS, which one do you recommend or find easiest to not mess up?

The following information pertains to Bender, Inc., for last year:

  • Net income of $25 million.
  • 1 million shares of $10 par value preferred stock outstanding paying a 10% dividend.
  • 50 million shares of common stock outstanding at the beginning of the year.
  • Issued an additional 5 million shares of common stock on 7/1.

What is Bender, Inc.'s basic earnings per share (EPS)?

Method 1:

50M shares * 12/12 = 50M Shares

5M new shares * 6/12 = 2.5M Shares

50M + 2.5M = 52.5M

Method 2:

50M shares * 6/12 = 25M

[50M (original) + 5M new] * 6/12 = 27.5M

25M + 27.5M = 52.5M

Is one way right and the other chance that it is the same? Curious what method you recommend.

Algebraically, they’re identical.

I recommend whichever one you find more comfortable.

Either way, I recommend that you draw a timeline. It’ll help.