Question

E11-17 Determining the Effect of a Stock Repurchase on EPS and ROE [LO 11-2, LO 11-5] Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2018 December March 31, 31, 2017 52,000 31,200 20,800 2018 Common Stock, $1 par, 52,000 shares outstanding Additional Paid-In Capital Retained Earnings 52,000 31,200 20,800 Total Stockho lders' Equity $104,000 $104,000 During the quarter ended March 31, SPI reported Net Income of $6,240 and declared and paid cash dividends totaling $6,240. Required: 1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31. 2. Assume SPI repurchases 10,200 of its common stock at a price of $2 per share on April 1, 2018. Also assume that during the quarter ended June 30, 2018, SPI reported Net Income of $6,240 and declared and paid cash dividends totaling $6,240. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended June 30, 2018.

Answer 1

EPS = Net income Average Number of common shares outstanding $ 6240 - = $0.12 per share 52,000 shares ROE = Net income Average stock holder's oquity $6240 $104,000 = 6 percent] @ 240 96 10,200 shares are re purchased on April 9, 2018, only $1,800 ( 52,000 - 10,200 shares would be outstanding from April 1 - June 30, 2018 - 505 = $ 6240_ . 41,800 shares = $0.15 per share 10,200 shares are repurchased for $ 20,400 (10,200% $27 on April 1, 2018, resulting in a stockholder's Equity balance of $ 83,600 [$109,000 – $20,400) from April 3 - June 30, 2018 240 - = 746% 1C7,5% ROE = $ 83,600