Question

Waldemar company's net income for the year is $300 million. weighed-average shares are 150 million shares. in addition to common shares, the company also has $100 million par value, 6% cumulative preferred stock outstanding. the company's basic eps will be _____

multiple choice
a. $2.00.
b. $2.04.
c. $1.96.

Answer 1

To calculate Waldemar Company's basic EPS, preferred dividends of $6 million (6% of $100 million par value) are subtracted from the net income of $300 million, leaving $294 million for common shareholders. Dividing this by the 150 million shares results in a basic EPS of $1.96.

option a is the correct

Step-by-step explanation:

The question at hand involves calculating the basic earnings per share (EPS) for Waldemar Company. To determine the basic EPS, we first need to subtract the preferred dividends from the net income before dividing by the average number of common shares outstanding. Since the preferred stock is cumulatively preferred, the company must pay preferred shareholders their dividends before any dividends to common shareholders are considered.

The preferred dividends can be calculated as 6% of the $100 million par value of the preferred stock, which amounts to $6 million. After subtracting the $6 million preferred dividends from the $300 million net income, we are left with $294 million available to common shareholders. Dividing this by the 150 million weighted-average shares gives us an EPS of $1.96. Therefore, the correct answer for Waldemar Company's basic EPS is $1.96.