Woods Inc. is a provincially incorporated company working in software developmen

Question

Woods Inc. is a provincially incorporated company working in software development. The company was initially owned by a group of 40 investors that included the four original founders, their friends and families, and employees. The company is authorized to issue 53,000,000 common shares. At the beginning of 2016, there were 1,100,000 common shares outstanding which had been issued for $2,530,000, all of these shares were owned by the initial group. Due to the company’s rapid success, management decided to raise funds for further growth by issuing more shares. In 2016, the company went public with an initial public offering (IPO) that sold 5,100,000 shares and raised $56,100,000. Other information is as follows:

1. After losses in the early years, the company recently had positive earnings. The opening balance of retained earnings on January 1, 2016, was $1,210,000.

2. In 2016, net income was $2,730,000.

3. On December 31, 2016, the shares were trading at $10.70.

Question:

a.What percentage of the company does the original group of investors own after the IPO?   

b. What was the EPS amount for 2016 based on the end-of-year number of shares outstanding?

Explanation / Answer

a)Total shares outstanding After IPO = 1,100,000 + 5,100,000 = 6,200,000 Shares

% of company original group hold = 1,100,000 / 6,200,000

                                                             = .1774 or 17.74%

b)EPS =net income / number of shares outstanding

                   = 2,730,000 / 6,200,000

                 = $ .44 per share

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