Please guys,help me to understand the question below. Schweser answer is B. An analyst gathered the following information about a company: „X 01/01/06 - 20,000 shares issued and outstanding „X 04/01/06 - 5.0% stock dividend „X 07/01/06 - 5,000 shares repurchased „X 10/01/06 - 2:1 stock split What is the company¡¦s weighted average number of shares outstanding at the end of 2006? A) 39,500. B) 37,000. C) 45,000. D) 47,000. thanks but CFA institute’s method is the following: 1/1 Number of shares= 20000 *3/12= 5000 4/1 issuance of 5%stock dividend, Number of shares = 2000*1.05*3/12 = 5250 7/1 Repurchase of 5000, Number of shares= (2000*1.05- 5000)*3/12 = 4000 10/1 split 2:1, Number of shares = (20000*1.05-5000)*2*3/12=8000 total= 22250 Why is Schweser doing it differently?
stock splits and stock dividends are applied as though for the whole year, not for portion of the year. 1/1 20000 * 12/12 * 1.05 * 2 = 42000 4/1 5% stock div 7/1 repurchase 5000 = -5000 * 6/12 * 2 = -5000 10/1 2:1 stock split net=42-5 = 37
you can do in a number of ways, my way is the following 20,000*1.05=21000 -5000*6/12=2500 *x2 =37000 stock splits are effective as of beg of the year so no 3/12 is necessary