Question

At December 31, 2018, the balance sheet of Darwin Corporation included 8 million common shares and 4 million non-convertible preferred shares. On July 1, 2019, Darwin issued a 5 for 4 stock split on its common shares and paid $10 million cash dividends on the preferred stock. Net income for the year ended December 31, 2019, was $40 million. Darwin’s 2019 EPS should be:___________________________.

Answer 1

$3

Step-by-step explanation:

Data provided in the question:

common shares = 8 million

non-convertible preferred shares = 4 million

stock split on its common shares = 5 for 4 = 5/4

cash dividends on the preferred stock on common shares = $10 million

Net income for the year ended December 31, 2019 = $40 million

Now,

Darwin’s 2019 EPS

= [ Net income - cash dividends ] ÷ ( common shares × stock split )

= [ $40 million - $10 million] ÷ ( 8 million × ( 5 ÷ 4 ) )

= [ $30 million ] ÷ ( 10 million )

= $3