# EPS..making some mistake

An analyst gathered the following information about a company: 01/01/04 - 50,000 shares issued and outstanding at the beginning of the year 04/01/04 - 5% stock dividend 10/01/04 - 10% stock dividend What is the company’s weighted average number of shares outstanding at the end of 2004? A) 57,500. B) 57,750. C) 55,000. D) 60,500. I am making some mistake in 2nd calculation…plz help 50,000 * 12 = 600,000 for dividend… 50,000 * 12 * 5/100 = 30,000 total 630,000/12 = 52,500 --------------------------------------------------------------------till here i guess its right… we again have 10 % dividend… 50,000 * 12 = 600,000 50,000 *12*10/100 = 60,000 30,000 *12*10/100 = 36,000 696,000/12 = 58,000 but not getting 57,500… I am making mistake in 2nd part…plz help Thanks in advance…

stock dividend is always from the beginning of period, irrespective of when the stock dividend is declared. so in this case 50 * 1.05 * 1.1 = 57.75 (Choice B) is your answer.

stock dividend is considered issued as of the beginning of the year, so this would be (1+5%+10%)*50,000=57,500

thnx for help…got my mistake…

so which one is it? A or B?

57500…

map1, can you clarify why the 10/1 10% stock dividend applies only to the stock 50K at the beginning of the year, and not to the 4/1 5% stock dividend as well. what you’ve calculated is: 1.05 * 50 + 1.1 * 50 = 57500 What I did was: 1/1 50 * 1.05 * 1.1 ==> 57750 4/1 stock div 10/1 stock div

schweser…qbank

can you check errata, or ask them to clarify.

The issue of stock dividend doesn’t result in an inflow of economic benefits similar to a bonus issue. Only stocks issued which results in generation of inflow of economic benefits (for example for cash consideration) should be pro-rated and consequently taken into account for further stock issue. Therefore it is assumed the stock dividends were issued at the start of the year and also the EPS for the preceding year will be adjusted.(IMO) Cheers Sumo

I don’t think they are mistaken, CP. Both issues are of stock dividends, and apply as of the beginning of the year both. Even if during the year there was some new issue of stock, at a time before the first issue, or between the two stock dividends issue, both stock dividends issues would restate the beginning of the year # of shares outstanding.

What will happen in this case? 01/01/04 - 50,000 shares issued and outstanding at the beginning of the year 04/01/04 - 5% stock dividend 07/01/04 - 10,000 new shares issued 10/01/04 - 10% stock dividend What is the company’s weighted average number of shares outstanding at the end of 2004? I would say: 50000 *1.05 = 52500. 52500 + 10,000*6/12 = 57,500 57500 * 1.1 = 63250. Am i correct?

December, i changed the question… i included another transaction: new stock issue.

give me 2 mins… i miss read the question…

sumit_kansal Wrote: ------------------------------------------------------- > What will happen in this case? > > 01/01/04 - 50,000 shares issued and outstanding at > the beginning of the year > 04/01/04 - 5% stock dividend > 07/01/04 - 10,000 new shares issued > 10/01/04 - 10% stock dividend > > What is the company’s weighted average number of > shares outstanding at the end of 2004? > > I would say: > > 50000 *1.05 = 52500. > 52500 + 10,000*6/12 = 57,500 > 57500 * 1.1 = 63250. > > Am i correct? ------------------------------------------------------------------------------------------------------------ I think it would be: 50000+50000*0.05+50000*0.1=57500 10000*6/12= 5000 Weighted average no. of shares= 57500+5000= 62500. Cheers Sumo

ya got same answer 63 250

december 2008 Wrote: ------------------------------------------------------- > ya got same answer 63 250 Nope, it is 62,500, as sumo calculated: first adjust the shares outstanding at the beginning of the year: (1+5%+10%)*50,000= 57,500 Then average: 57,500*6/12 + (57,500+10,000)*6/12 = 62,500

we would get 10% dividend on new shares right?? 07/01/04 - 10,000 new shares issued and 10 % dividend is on 10/01/04 ??

No. All stock dividends and stock splits adjust the number of shares available as of the beginning of the year.