Question

Foxhound Corp reported net income of $720,000 for the year ended December 31, 2019. Foxhound had 100,000 common shares outstanding as of January 1st, 2019; 24,000 fully vested (as of 2013) stock options (each option allows for one common share at a $50 exercise price): Foxhound bought back 20,000 common shares on October 1st, 2019. The average market price of the shares throughout the year was $60 per share. Which of the following is the Basic EPS for Foxhound at the end of 2019? (Round to the nearest penny

A. $9.00
B. $7.58
C. $10.00
D. 7.30

Answer 1

B. $7.58

Step-by-step explanation:

earnings per share = (net income - preferred dividends) / weighted average of shares outstanding

shares outstanding:

January 1: 100,000 x 12/12 = 100,000

October 1: -20,000 x 3/12 = -5,000

weighted average = 95,000

EPS = $720,000 / 95,000 = $7.5789 =$7.58

Stock options are not included in the basic EPS calculation.