ACME,Inc.reported the following income statement for 2009: If ACME's sales next year increase by 20%,what will ACME's earnings per share be?
A)$5.76
B)$6.45
C)$7.14
D)$7.58

Question

ACME,Inc.reported the following income statement for 2009:  If ACME's sales next year increase by 20%,what will ACME's earnings per share be?
A)$5.76 
B)$6.45 
C)$7.14 
D)$7.58

Quizplus · Accepted Answer

To find the earnings per share (EPS), we need to divide the net income by the number of outstanding shares.

Currently, the net income is $3,740,000 and the number of outstanding shares is 1,000,000, so the EPS is:

EPS = $3,740,000 ÷ 1,000,000 = $3.74

If the sales increase by 20%, we can assume that all other costs and expenses will also increase by 20%, resulting in a new net income of:

New net income = 1.20 × $3,740,000 = $4,488,000

To find the new EPS, we also need to account for any changes in the number of outstanding shares. If there are no new issuances or buybacks of shares, the number of outstanding shares will remain the same.

New EPS = $4,488,000 ÷ 1,000,000 = $4.49

Therefore, increasing the sales by 20% would result in an EPS of $4.49, which is closest to option C ($7.14 is not a possible choice).

ACME,IncReported the Following Income Statement for 2009: If ACME's