Question 2 12 points Your nextdoor neighbor thinks that she

Question 2 (1.2 points) Your next-door neighbor thinks that she has discovered the next food craze: a blend of Chinese and Mexican cuisine she is calling ChinMex. She already has one location that is busy all day. She currently has gross sales of $13 million. Her expenses, which include ingredients, rent, and personnel, run $11.5 illion. Your neighbor is considering bringing in outside investors. She would like to issue 2 million shares of stock and sell the stock for $25 each in an IPO. If she does this, how much would someone who purchases one share earn? In other words, what is the earnings per share for the company? 3 cents. 6 cents 25 cents ) 75 cents 1

Solution

EPS = net income / average outstanding common shares

= ($13 million - $11.5 million) / 2 million

= $1.5 million / 2 million

= 0.75

= 75 cents

Answer : 4