CFA Level I · CFA Level I Exam · Financial Analysis Techniques
A company reports net income of $60 million and pays preferred dividends of $6 million. It had 20 million common shares outstanding at the start of the year and issued 6 million new shares on 1 October. The weighted average number of shares for the year is closest to:
The weighted average share count is about 21.5 million. The 6 million shares issued on 1 October were outstanding for only a quarter of the year, adding 1.5 million to the opening 20 million. Counting all new shares would wrongly give 26 million.
- A21.5 millionCorrect
- B22.0 million
- C26.0 million
Explanation
The new shares were outstanding for 3 of 12 months: 6 × 3/12 = 1.5 million. Weighted average = 20 + 1.5 = 21.5 million. Using the full 6 million gives 26 million, which ignores timing.
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