Chapter 12, Problem 12.5CP

1.

To determine

Earnings per share (EPS): It refers to the share of earnings earned by the shareholder on each owned. The formula to calculate the earnings per share is as follows:

$\begin{array}{l}\text{Earnings }\\ \text{per share}\end{array}\}\text{ = }\frac{\text{Net income – Preferred dividends}}{\text{Weighted average number of shares outstanding}}$

To Prepare: a table indicating the expected earnings per share on the common stock under each plan.

2.

a.

To determine

To discuss: the factors that should be considered in evaluating the two plans.

b.

To determine

To explain: the plan that offers greater benefit to the present stockholders.