Question

Adam company's net income for the year is $100 million. weighed-average shares are 50 million shares. in addition to common shares, the company also has $50 million par value, 8% cumulative preferred stock outstanding. the company's basic eps will be ___

multiple choice
a. $2.00
b. $2.04
c. $2.08
d. $1.92

Answer 1

To calculate the basic EPS for Adam Company, subtract the preferred stock dividends from the net income and divide by the weighted-average number of shares. The basic EPS is $1.92 per share, which corresponds to option D.

Step-by-step explanation:

The question requires us to calculate the basic EPS (Earnings Per Share) for Adam Company. To determine the basic EPS, we need to adjust the net income for the preferred stock dividends and then divide by the weighted-average number of common shares outstanding. The calculation goes as follows:

Firstly, we calculate the dividends for the preferred stock, which is 8% of the $50 million par value, resulting in $4 million ($50 million * 8%).

Net income available to common shareholders is the net income minus preferred dividends: $100 million - $4 million = $96 million.

Finally, we divide this amount by the weighted-average shares outstanding to get the basic EPS: $96 million / 50 million shares = $1.92 per share.

Thus, the correct option for the basic EPS of Adam Company is option D. $1.92.