Which of the Following Approaches Best Indicates How EPS Should

question 14

Multiple Choice

Which of the following approaches best indicates how EPS should be computed? Take after-tax net income and divide by:

• A) current common shares outstanding.
• B) previous years common shares outstanding.
• C) treasury shares outstanding.
• D) average common shares outstanding.

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Definitions:

Total Fixed Cost

The sum of all costs that remain constant regardless of the level of production or output.

Output Level

The quantity of goods or services produced within a given period by a business or economy.

Total Variable Cost

The sum of all costs that vary with the level of output, including expenses like materials and labor, but not fixed costs.

Output Level

Refers to the quantity of a product or service produced by a company or an economic sector within a specific period.