Using the following information, determine the earnings per share (EPS)for Montreal Computing Power Company.

Montreal Computing Power Company has 1,000 common shares outstanding and no preferred shares.The shares were issued 10 years ago at $1.25 per share and currently trade at $3 per share.
A)-$1.00
B)$0.80
C)$1.00
D)$2.00

Question

Using the following information, determine the earnings per share (EPS)for Montreal Computing Power Company.

Montreal Computing Power Company has 1,000 common shares outstanding and no preferred shares.The shares were issued 10 years ago at $1.25 per share and currently trade at $3 per share.
A)-$1.00 
B)$0.80 
C)$1.00 
D)$2.00

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated as follows:

EPS = (Net income - Preferred dividends) / Number of common shares outstanding

Since Montreal Computing Power Company has no preferred shares, the EPS would be simply the net income divided by the number of common shares outstanding.

We are not given the net income of the company, so we cannot calculate the EPS directly. However, we can use the information given to eliminate some answer choices.

We know that the shares were issued 10 years ago at $1.25 per share, and currently trade at $3 per share. This means that the company has gained $1.75 per share in value over the past 10 years.

If the company had not earned any profits at all during those 10 years, then the EPS would be -$1.25 (since the shares were issued at $1.25).

However, we know that the current share price is $3, which means that the market values the company higher than its original share price. This suggests that the company has earned profits over the past 10 years.

Therefore, the EPS must be higher than -$1.25, and we can eliminate answer choices A and D.

Answer choice C, $1.00, is unlikely since it is greater than the current share price of $3.

This leaves us with answer choice B, $0.80. Although we cannot confirm this as the correct answer without knowing the net income, it is the most likely answer given the information provided.

Using the Following Information, Determine the Earnings Per Share (EPS)for