Final answer:
To calculate Darwin Corporation's EPS for 2017, we adjusted for the stock split and divided the net income by the weighted average of outstanding common shares. The EPS turned out to be approximately $4.44.
Step-by-step explanation:
The question asks how to calculate Darwin Corporation's earnings per share (EPS) for the year 2017 after a stock split and dividend payments were made. First, we need to acknowledge that there was a 5 for 4 stock split on the common shares. This means that for every 4 shares held, the holder received an additional share, effectively increasing the total number of shares by 25%. Initially, Darwin had 8 million common shares, so after the split, it had 10 million shares (8 million x 5/4).
Darwin Corporation paid 10 million in cash dividends on its preferred stock; however, since the preferred dividends do not affect the calculation of earnings per share for common stock, we can ignore this detail for our EPS computation. The net income for Darwin for the year ended December 31, 2017, was 40 million. No information about the weighted-average number of shares is provided, so we will assume the shares were outstanding for the whole year.
To calculate the EPS, we take the net income and divide it by the number of outstanding shares. Since the split occurred halfway through the year, we must adjust our calculation to account for the increased share count:
- Net Income = 40 million
- Total Shares for half the year = 8 million
- Total Shares for the other half = 10 million
Weighted Shares = (8 million * 0.5) + (10 million * 0.5) = 4 million + 5 million = 9 million
EPS = Net Income / Weighted Shares = 40 million / 9 million = 4.44 (approximately)
Therefore, the earnings per share (EPS) for Darwin Corporation for the year 2017 would be approximately $4.44.