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Basic Question 6 of 40
Last year, the AKB Company had net income equal to $5 million. Combined state and local taxes were 45 percent. The firm paid $1 million to its 1 million common shareholders and $250,000 to 100,000 preferred shareholders. What was AKB's earnings per share (EPS) last year?
B. $3.75
C. $4.75
A. $2.25
B. $3.75
C. $4.75
User Contributed Comments 11
| User | Comment |
|---|---|
| kalps | Under US GAAP Net income does not equalt the payment of dividneds, hence the pref fivs will need to be subtracted to get the net income available to ordinary shareholders |
| hallow | It should be $4750000/1000000 = $4.75. |
| Done | What happen to the taxes? You don't need it? |
| sally | notice the net income: tax has been excluded from it. |
| mordja | Mention of tax and the amount paid to ordinary shareholders are red herrings. |
| yael | Net Income means the amount is already net of taxes. |
| meghanchloe | Good one yael! |
| jpducros | In that type of question, you'll only need the tax rate if you have convertible Bonds, to calculate the impact of the tax on the interest. Otherwise delete that info. |
| cleopatraliao | Also the denominator is only concerning about common shares outstanding but does not include no. of preference stock right because it hasn't been converted yet...?am i correct? |
| majesty | Only new in this question for me is idomatic expression "Red Herring" |
| johntan1979 | Spell idiomatic like an idiot |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
describe how earnings per share is calculated and calculate and interpret a company's basic and diluted earnings per share for companies with simple and complex capital structures including those with antidilutive securities
CFA® 2024 Level I Curriculum, Volume 2, Module 2.