Question

Security Analysts that have evaluated Concordia Corporation, have determined that there is a 15% chance that the firm will generate earnings per share of $2.40; a 60% probability that the firm will generate earnings per share of $3.10; and a 25% probability that the firm will generate earnings per share of $3.80. What are the expected earnings per share for Concordia Corporation? (Round off to the nearest $0.01)

A) $3.10
B) $3.17
C) $2.75
D) $2.91

Answer 1

To calculate the expected earnings per share for Concordia Corporation, multiply each possible EPS outcome by its probability and add the results. The calculated expected EPS is $3.17, corresponding to option B.

Step-by-step explanation:

The expected earnings per share (EPS) for Concordia Corporation can be calculated by multiplying each possible earnings per share outcome by its respective probability and then summing these products. The calculation is as follows:

Expected EPS = (Probability of Outcome 1 × Outcome 1) + (Probability of Outcome 2 × Outcome 2) + (Probability of Outcome 3 × Outcome 3)

So, it would be:

Expected EPS = (0.15 × $2.40) + (0.60 × $3.10) + (0.25 × $3.80)

Expected EPS = ($0.36) + ($1.86) + ($0.95)

Expected EPS = $3.17

Therefore, the expected earnings per share for Concordia Corporation is $3.17, which corresponds to option B.