Question
In: Finance
Frantic Fast Foods had earnings after taxes of $1,070,000 in 20X1 with 311,000 shares outstanding. On...
Frantic Fast Foods had earnings after taxes of $1,070,000 in
20X1 with 311,000 shares outstanding. On January 1, 20X2, the firm
issued 31,000 new shares. Because of the proceeds from these new
shares and other operating improvements, earnings after taxes
increased by 24 percent.
a. Compute earnings per share for the year 20X1.
(Round your answer to 2 decimal places.)
b. Compute earnings per share for the year 20X2.
(Round your answer to 2 decimal places.)
Solutions
Expert Solution
| a. | ||||||||||||
| Earnings per share for the year 20X1 | $ 3.44 | |||||||||||
| Working: | ||||||||||||
| Earnings per share for the year 20X1 | = | Earnings after taxes | / | Number of shares outstanding | ||||||||
| = | $ 10,70,000 | / | 3,11,000 | |||||||||
| = | $ 3.44 | |||||||||||
| b. | ||||||||||||
| Earnings per share for the year 20X2 | $ 3.88 | |||||||||||
| Working: | ||||||||||||
| Earning After Tax in 20X2 | = | Earning After Tax in 20X1 x (1+0.24) | ||||||||||
| = | $ 10,70,000 | x (1+0.24) | ||||||||||
| = | $ 13,26,800 | |||||||||||
| Number of shares outstanding | = | 311000+(31000*12/12) | ||||||||||
| = | 3,42,000 | |||||||||||
| Earnings per share for the year 20X2 | = | Earnings after taxes | / | Number of shares outstanding | ||||||||
| = | $ 13,26,800 | / | 3,42,000 | |||||||||
| = | $ 3.88 | |||||||||||
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