SIE (Securities Industry Essentials) Practice Exam

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What will the value of each non-preferred share be if a company has $100,000 in annual earnings and $75,000 in expenses, owing preferred shareholders $7,000, with 10,000 shares issued?

$1.80
$2.30
$3.00
$0.70

The correct answer is: $1.80

To calculate the value of each non-preferred share, we must first determine the total profit available to shareholders after preferred shareholders have been paid. In this scenario, the total profit is $23,000 ($100,000 - $75,000 - $7,000). Since there are 10,000 shares issued, dividing the total profit by the number of shares gives us a value of $2.30 per share. However, since preferred shareholders must be paid a fixed amount of $0.70 per share, the remaining amount is available for non-preferred shareholders, resulting in a value of $1.80 per share. Option B is incorrect because it does not take into account the $7,000 owed to preferred shareholders. Option C is incorrect because it does not consider the expenses of $75,000. Option D is incorrect because it only takes into account the earnings of $100,000 without considering the expenses and preferred shareholders' earnings.