Question

Sosa Diet Supplements had earnings after taxes of $800,000 in 20X1 with 200,000 shares of stock outstanding. On January 1, 20X2, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.

a. Compute earnings per share for the year 20X1.

b. Compute earnings per share for the year 20X2.

Short answer

Earning per share of Sosa Diet Supplements for the year ending:

20X1: $4

20X2: $4.16

Step-by-step solution

Calculation of EPS for the year 20X1

$$\begin{gathered} EPS=\frac{Earningaftertax}{No.ofsharesouts\tan ding} \\ =\frac{\$800,000}{200,000} \\ =\$4 \end{gathered}$$

Calculation of EPS for the year 20X2

$$\begin{gathered} EPS=\frac{Earningaftertax\left(1+increaseinearning\right)}{No.ofsharesouts\tan ding+No.ofsharesissued} \\ =\frac{\$800,000\left(1+30\%\right)}{200,000+50,000} \\ =\frac{\$1,040,000}{250,000} \\ =\$4.16 \end{gathered}$$