Under given conditions, compute earnings per share for 2009, 2010.

[devinediva]

I am trying to figure out the proper way to solve this problem, but the book examples aren't much help. Please help! For A, am I suppose to divide $390,000 by 300,000? And for B, divide $390,00 by 25,000 then multiply in the 20%? So confused.

Frantic Fast Foods had earnings after taxes of $390,000 in the year 2009 with 300,000 shares outstanding. On January 1, 2010, the firm issued 25,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 20 percent.
A) Compute earnings per share for the year 2009.
B) Compute earnings per share for the year 2010.

 

[DrPhil]

I am trying to figure out the proper way to solve this problem, but the book examples aren't much help. Please help! For A, am I suppose to divide $390,000 by 300,000? And for B, divide $390,00 by 25,000 then multiply in the 20%? So confused.

Frantic Fast Foods had earnings after taxes of $390,000 in the year 2009 with 300,000 shares outstanding. On January 1, 2010, the firm issued 25,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 20 percent.
A) Compute earnings per share for the year 2009.
B) Compute earnings per share for the year 2010.

A) Yes, earnings/share (for 2009) = $1.30

B) Total earnings for 2010 increased by 20%, to ...
....Number of shares in 2010 increased by 25,000, to ...
....Earnings/share (for 2010) = ...

 

[devinediva]

A) Yes, earnings/share (for 2009) = $1.30

B) Total earnings for 2010 increased by 20%, to ...
....Number of shares in 2010 increased by 25,000, to ...
....Earnings/share (for 2010) = ...

So would B) become $18.72? I'm not understanding that part.

 

[HallsofIvy]

"Earnings after taxes increased by 20 percent". "Earnings after taxes" in 2009 were $390000. 20% of that is 78000 so earnings after taxes in 2010 were $390000+ 78000= $468000. In 2009 there were 300000 shares, in 2010 there were 300000+ 25000= 325000 shares. NOW what were "earnings per share" in 2010?

 

[georgiagirl]

I also confused

"Earnings after taxes increased by 20 percent". "Earnings after taxes" in 2009 were $390000. 20% of that is 78000 so earnings after taxes in 2010 were $390000+ 78000= $468000. In 2009 there were 300000 shares, in 2010 there were 300000+ 25000= 325000 shares. NOW what were "earnings per share" in 2010?

Hi can you tell me how to get the answer to part B, how do you go about it. I also have a similar math problem and im so confused.

 

[JeffM]

Hi can you tell me how to get the answer to part B, how do you go about it. I also have a similar math problem and im so confused.

Here is where abstraction comes in handy.

earnings in first year = e.
percentage growth in earnings from first year to second year = x.

earnings in second year = \(\displaystyle e\left(1 + \dfrac{x}{100}\right) = e + \left(e * \dfrac{x}{100}\right) = e + \Delta e\). You with me to here?

shares in first year = s.
percentage growth in shares from first year to second year = y.

shares in second year = \(\displaystyle s\left(1 + \dfrac{y}{100}\right) = s + \left(s * \dfrac{y}{100}\right) = s + \Delta s\). You with me to here?

earnings per share in first year = \(\displaystyle \dfrac{e}{s}.\) Make sense?

earning per share in second year = \(\displaystyle \dfrac{e + \Delta e}{s + \Delta s}.\) Simple, right? Earnings divided by shares.