A corporation: GMAT Prep

[Guest]

A corporation with 5,000,000 shares of publicly listed stock reported total earnings of $7.20 per share for the first 9 months of operation. During the final quarter the number of publicly listed shares was increased to 10,000,000 shares, and fourth quarter earnings were reported as $1.25 per share. What are the average annual earnings per share based on the number of shares at the end of the year?

(A) $1.83
(B) $2.43
(C) $4.85
(D) $8.45
(E) $9.70

OA C

I started by calculating the total earning ( # shares X $/per share ).

Then, thought Total Dollar/Total Share = ans

Not so. Can some please help. I am thinking this is probably weighted average.

[Post GMAT Stress Syndrome]

[(5000000 *7.20) + (10000000*1.25)] /10000000

That should give you 4.85

Its total earnings by number of shares will give you earnings per share.

[RonPurewal]

[(5000000 *7.20) + (10000000*1.25)] /10000000

That should give you 4.85

Its total earnings by number of shares will give you earnings per share.

yes.

also, note that you don't have to be overly concerned with the number of 0's at the end, as the digits in the answer choices are all different. once you realize that the two terms that you're adding together will have the same number of 0's, you can just do 5x7.2 + 10x1.25 = 36 + 12.5 = 48.5. then pick the only answer choice with those digits in it.

[commit.gmat]

This is how I approached it. Calculation is way easy this way.

For the first nine months
5,000,000 shares --> 7.20/share
since we know that at the end of the year shares are double this number, assume that we have that many shares at the end of 9 months. Then, earning per share would simply be 7.20/2 = $3.60.

10,000,000 --> $3.60

4th quarter:
10,000,000 --> $1.25

simply add $3.60+$1.25 = $4.85

A corporation with 5,000,000 shares of publicly listed stock reported total earnings of $7.20 per share for the first 9 months of operation. During the final quarter the number of publicly listed shares was increased to 10,000,000 shares, and fourth quarter earnings were reported as $1.25 per share. What are the average annual earnings per share based on the number of shares at the end of the year?

(A) $1.83
(B) $2.43
(C) $4.85
(D) $8.45
(E) $9.70

OA C

I started by calculating the total earning ( # shares X $/per share ).

Then, thought Total Dollar/Total Share = ans

Not so. Can some please help. I am thinking this is probably weighted average.

[ashish.jere]

shouldn't it be?

[(5000000 *7.20) + (5000000*1.25)] /10000000

was increased to 10,000,000 shares

what am i missing here? (@@)

[RonPurewal]

shouldn't it be?

[(5000000 *7.20) + (5000000*1.25)] /10000000

was increased to 10,000,000 shares

what am i missing here? (@@)

you're missing the fact that ALL of the shares - including the shares that were there for the first nine months - earned money during those last three months.

your calculation implies that only the new shares earned money during those 3 months - i.e., the old shares sat stagnant. that's not true.

[RonPurewal]

@ commit gmat:

nice approach.

the problem with that approach, though, is that it's severely limited: it won't work at all unless the numbers are as friendly as the numbers in this problem.
i.e., change the numbers of shares to anything that's not in such a nice ratio, and you can't do that anymore.

still, nice shortcut for cases in which the numbers are this nice.

[ashish.jere]

shouldn't it be?

[(5000000 *7.20) + (5000000*1.25)] /10000000

was increased to 10,000,000 shares

what am i missing here? (@@)

you're missing the fact that ALL of the shares - including the shares that were there for the first nine months - earned money during those last three months.

your calculation implies that only the new shares earned money during those 3 months - i.e., the old shares sat stagnant. that's not true.

thanks ron.

[RonPurewal]

shouldn't it be?

[(5000000 *7.20) + (5000000*1.25)] /10000000

was increased to 10,000,000 shares

what am i missing here? (@@)

you're missing the fact that ALL of the shares - including the shares that were there for the first nine months - earned money during those last three months.

your calculation implies that only the new shares earned money during those 3 months - i.e., the old shares sat stagnant. that's not true.

thanks ron.

you got it.

[abmovietoday]

Does this not have to be a weighted average? 9 months for $7.20 vs 3 months for the rest?