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.