To determine the earnings per share (EPS) for Black Bull Inc. for the years 20Y5 and 20Y6, we will use the formula:
\[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Average number of Common Shares Outstanding}} \]
Step 1: Calculate EPS for 20Y5
- Net Income for 20Y5: $1,741,000
- Preferred Dividends for 20Y5: $40,000
- Average number of common shares outstanding for 20Y5: 90,000 shares
Using the EPS formula:
\[ \text{EPS}_{20Y5} = \frac{1,741,000 - 40,000}{90,000} = \frac{1,701,000}{90,000} = 18.90 \]
Step 2: Calculate EPS for 20Y6
- Net Income for 20Y6: $2,632,000
- Preferred Dividends for 20Y6: $40,000
- Average number of common shares outstanding for 20Y6: 120,000 shares
Using the EPS formula:
\[ \text{EPS}_{20Y6} = \frac{2,632,000 - 40,000}{120,000} = \frac{2,592,000}{120,000} = 21.60 \]
Summary of EPS Calculations
- Earnings per Share 20Y5: $18.90
- Earnings per Share 20Y6: $21.60
Step 3: Determine Change in EPS
Now, to evaluate whether the change from 20Y5 to 20Y6 is favorable or unfavorable:
- EPS in 20Y5: $18.90
- EPS in 20Y6: $21.60
Change in EPS: \[ 21.60 - 18.90 = 2.70 \]
Since the EPS increased from 20Y5 to 20Y6, this change is favorable.
Final Results
a. Earnings per Share:
- 20Y5: $18.90
- 20Y6: $21.60
b. The change in the earnings per share from 20Y5 to 20Y6 is favorable.
1 answer