The net income of the firm is $4 million dollars.The firm will pay $500,000 in dividends to the preferred shareholders.There are currently 1 million shares of common stock outstanding.What are the earnings per share for this firm?

Question

Quizplus · Accepted Answer

To find the earnings per share, we need to subtract the dividend paid to the preferred shareholders from the net income and then divide by the number of outstanding common shares.

Net income after dividends to preferred shareholders = $4,000,000 - $500,000 = $3,500,000

Earnings per share = Net income after dividends to preferred shareholders / Number of outstanding common shares 
= $3,500,000 / 1,000,000 
= $3.50

Therefore, the earnings per share for this firm is $3.50, and the best choice is B.

The Net Income of the Firm Is $4 Million Dollars