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FINRA Series 7

Category - Series 7

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Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value). What are the earnings per share of common stock?

$8.50
$6.00
$4.20
$10.50

Explanation

Answer: A - $8.50. Subtract the preferred dividend of $800,000 (100,000 x 8% x 100) from the net income. Divide the result of $3,400,000 ($4,200,000 - $800,000) by the 400,000 common shares to obtain $8.50.

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