Allen Lumber Company had earnings after taxes of $750,000 in the year 2009 with 300,000 shares outstanding on December 31, 2009. On January 1, 2010, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, 2010 earnings after taxes were 25 percent higher than in 2009. Earnings per share for the year 2010 were

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS) for 2009:

EPS = Earnings After Taxes / Number of Shares Outstanding
EPS = $750,000 / 300,000
EPS = $2.50

Then, we need to calculate the earnings after taxes for 2010:

2010 Earnings After Taxes = 2009 Earnings After Taxes * (1 + Growth Rate)
2010 Earnings After Taxes = $750,000 * (1 + 0.25)
2010 Earnings After Taxes = $937,500

Finally, we can calculate the EPS for 2010 with the new shares issued:

EPS = 2010 Earnings After Taxes / Total Number of Shares
EPS = $937,500 / (300,000 + 50,000)
EPS = $2.68

Therefore, the answer is B) $2.68.

Allen Lumber Company Had Earnings After Taxes of $750,000 in the Year