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3 years ago

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On December 31, 2020, Brisbane Company had 100,000 shares of common stock outstanding and 24,000 shares of 7%, $50 par, cumulati

ve preferred stock outstanding. On February 28, 2021, Brisbane purchased 16,000 shares of common stock on the open market as treasury stock paying $32 per share. Brisbane sold 5,200 treasury shares on September 30, 2021, for $37 per share. Net income for 2021 was $172,905. Also outstanding during the year were fully vested incentive stock options giving key officers the option to buy 42,000 common shares at $32. The market price of the common shares averaged $42 during 2021.
Required: Compute Brisbane's basic and diluted earnings per share for 2021.

1 answer:

prisoha [69]3 years ago

6 0

Answer:

Basic Earnings per share = $0.81

Diluted Earnings per share = $0.59

Explanation:

Basic Earnings per share = Earnings Attributable to Holders of Common Stock / Weighted Average Number of Common Stocks

Earnings Attributable to Holders of Common Stock Calculation :

Net income $172,905

Less Preference Dividend (24,000× $50×7%) ($84,000)

Earnings Attributable to Holders of Common Stock $88,905

Weighted Average Number of Common Stocks Calculation :

Common Stocks 1 January 2021 100,000

Add Common Stocks February 28, 2021 13,333

Less Common Stocks September 30, 2021 (3,640)

Weighted Average Number of Common Stocks 109,693

Basic Earnings per share = $88,905 / 109,693

= $0.81

Diluted Earnings per share = Adjusted Earnings Attributable to Holders of Common Stock / Adjusted Weighted Average Number of Common Stocks

Adjusted Earnings Attributable to Holders of Common Stock Calculation :

Net income $172,905

Less Preference Dividend (24,000× $50×7%) ($84,000)

Earnings Attributable to Holders of Common Stock $88,905

Adjusted Weighted Average Number of Common Stocks Calculation :

Weighted Average Number of Common Stocks 109,693

Add incentive stock options 42,000

Adjusted Weighted Average Number of Common Stocks 151,693

Diluted Earnings per share = $88,905 / 151,693

= $0.59

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Answer:

future worth:

project A 11,615.26

project B 12,139.18‬

It should choose project B as their future value is greater

IRR of project A: 13.54%

We should remember that the IRR is the rate at which the net value is zero thus, equals the inflow with the cash outlay

It is calculate with excel or financial calculator due to the complex of the formula.

Explanation:

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We calculate the future value of the cash flow per year and cost as we are asked for future value. The salvage value is already at the end of the project life so we don't adjust it.

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$C \times \frac{(1+r)^{time} -1}{rate} = FV\\$

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time 8

rate 0.12

$15000 \times \frac{(1+0.12)^{8} -1}{0.12} = FV\\$

FV $184,495.3970

Expenses future value

$C \times \frac{(1+r)^{time} -1}{rate} = FV\\$

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rate 0.12

$3000 \times \frac{(1+0.12)^{10} -1}{0.12} = FV\\$

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Project B

cost:

$Principal \: (1+ r)^{time} = Amount$

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time 10.00

rate 0.12000

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$C \times \frac{(1+r)^{time} }{rate} = FV\\$

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rate 0.12

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we write the time and cash flow for each period.

Time Cash flow

0 -40,000

1 -3,000

2 -3,000

3 12,000

4 12,000

5 12,000

6 12,000

7 12,000

8 12,000

9 12,000

10 16,000

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Then we write on excel the function =IRR(select the cashflow)

and we got the IRR of the project

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