Needed help with Q2, details please! On January 1, 2015, warren Corporation had

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Needed help with Q2, details please! On January 1, 2015, warren Corporation had 1,000,000 shares of common stock On July 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 500,000 of its own outstanding shares. Instruction - Compute the weighted average number of shares of 5% preferred stock. $50 par value outstanding. There were no changes to the preferred shares in 2015. On December 31, 2015. Warren Corporation reported net income of $38 million. Instructions Compute the basic earnings per share for 2015. Compute the diluted earnings per share for 2015. Compute the dividend payout ratio for 2015. Who gets more dividends, the preferred or the common shareholders? Compute the weighted average number of shares to be used in computing earnings per share for 2015 between the common and preferred shareholders. On January 1, 2015. Warren Corporation had 1,000.000 shares of common stock outstanding. On March 1. the corporation issued 150,000 new shares to raise additional capital.

Explanation / Answer

date Issues/Repurchase No.of Outstanding Shares After Stock spilt no. of shares outsnading No.of Months held Weighted average shares 1-Jan 1000000 2000000 2/12 months 333333.333 1-Mar 1150000 1150000 2300000 7/12 months 1341666.67 1-Oct -500000 1800000 1800000 3/12 months 450000 Total 2125000 Note stock spllit has effect from the start of the year Ans a Basic EPS=Net Income-Preferred Dividend/Weighted averga no.of common stockholder 38000000-(1000000*15*5%)/2125000 17.53 Ans Ans b Diluted EPS is same as there is no potential stock 17.53 Ans c) Dividend Payout ratio For pReferred stock Dividend to preferred stock/Net Income (1000000*15*5%)/38000000 0.01974 For common stockholder dividend is stock spilt ther is no cash dividend and as no price is given for so cant calculate it is 900000 stock at the year end as stock spilt they can get the dividend from the net income left after preferred divident d) Preferred stock dividend is fixed it will be same .01974 No mention of stock dividend for common stockholder e) For basic earning per share we need weighted average no. of common stockholder 2125000 For preference dividend weighted average shares is same 1000000 this is not used in calculation

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