Can you help me with calculation of the WASCO with the stock split? Stalla Question: The following information was obtained for Rex, Incorporated: Net Income 7,000,000 Common Dividend 0.5/share Preferred Dividend 5 % Beginning 5 par preferred shares outstanding, Jun 30, 2005 500,000 Beginning common shares outstanding, Jun 30, 2005 1,500,000 Issuance of common shares, Spet 30, 2005 1,000,000 Common stock split, Dec 31, 2005 3 -for - 1 repurchase of common shares, Mar 31, 2006 500,000 The firms basic earnings per share for the period ended June 30m 2006 is closets to: A) 1.15 B) $ 1.11 C) $0.92 The answer is B. Thanks…
Common dividend is irrelevant, it is income available to the shareholders Preferred dividend = 2,500* .05= 125 7,000-125= 6,875 for the numerator Account for the stock split first 1500*3=4500 1000*3=3000 4500 outstanding all year +(3000*.75) outstanding 9/12 months -500 = 6250 6875/6250=1.10
In CFA text book does not have question like that. I have done a lot of this question in Q bank. Because the issuance of addition shares in Sept 30 was before the stock split so those shares should be calculated in stock split = (1500k + 9/12*1000k)*3. Therefore, the answer is 1.
devildog- why the last 500 is not (500).25? It’s only for 3 month from Mar31-Jun30. I calculated it 6875/6625 = 1.04
It looks like the fiscal year is June to June not standard Jan - Dec.
You are right Adee I have to stop perusing this board at work. Sorry about that guys. Correcting that …what are we doing wrong or is the question bad?
Pretty sure the answers are messed up for this question. When you take into account the retirement of shares, you should use the weighted average number of months. So the total in this case it would be: Accounting for stock split first, Beginning: 1,500,000 * 3 = 4,500,000 * 12 months outstanding Issue: 1,000,000 * 3 = 3,000,000 * 9 months outstanding Treasury: 500,000 * 3 months retired Weighted Avg Shares [WAS] = 54,000,000 (Beginning) + 27,000,000 (Issued Shares) - 1,500,000 (Buyback) / 12 WAS = 6,625,000 NI - Pref Div = 7,000,000 - (500,000 Shares * $5 Par * 5%) NI - Pref Div = 7,000,000 - 125,000 = 6,875,000 EPS = 6,875,000 / 6,625,000 = 1.03774
The question is right… it clearly states that the beginning of the period is June 30, 05 and ending June 30, 06. Devildog was right in his calcs.
TreasuryAnalyst2 Wrote: ------------------------------------------------------- > The question is right… it clearly states that > the beginning of the period is June 30, 05 and > ending June 30, 06. Devildog was right in his > calcs. Doesn’t he have to consider the weight associated with repurchase date? I hink the answer is 1.04
Concurred with pacer0928 and varundarji. Need to weight the average of repurchase shares too. CFAI page 167.
I was mistaken. I was typing my answer and referring back up to the question and I lost the repurchase date in the back and forth. I agree that you need to weight the repurchased shares. Repurchased after the split date are not affected This is the alternate method Adjust the shares for the split Months outstanding Shares 1500 original=4500 split X 12 54000 1000 issued=3000 split X 9 27000 500 repurchased no adjustment(post split) 3 (1500) 79500/12=6625 7000-125 pref div=6875/6625=1.037 technically 1.11 is still CLOSEST to the right answer LOL
Hey guys, I got 1.037 as my Basic EPS as well. So what is the right answer?
I did it a slightly different way and got $1.037 as well: 1,500,000 * 3 (#mos outstanding) *3 (to adjust for split) = 13,500,000 2,500,000 * 6 (# mos outstanding with newly issued shares) *3 = 45,000,000 7,000,000 * 3 (no split adjustment needed, but subtracting 500k shares) = 21,000,000 (13.5mln + 45mln +21mln) / 12mos = 6,625,000 (7,000,000-125,000) = 6,875,000 6,875,000/6,625,000 = 1.037