A company wishing to expand can obtain the necessary funds by borrowing on a long-term note payable or by issuing 50,000 shares of $10 par value common stock. Net income is estimated at $302,500 if the company borrows the funds, and $330,000 if the company issues stock. The company currently has 250,000 shares of common stock outstanding. If the company issues stock, earnings per share would be:

Question

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated as net income divided by the number of outstanding shares. If the company issues stock, the total number of shares will be 250,000 + 50,000 = 300,000. Therefore, EPS = $330,000 / 300,000 = $1.10.

A Company Wishing to Expand Can Obtain the Necessary Funds