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For a firm with a simple capital structure, all of the following are necessary to measure basic earnings per share (EPS) EXCEPT: I). dividends paid to preferred shareholders. II). number of shares outstanding at the beginning of the year. III). the timing and number of shares issued or repurchased during the year. IV). dividends paid to common shareholders.
Correct Answer: C
Basic EPS = earnings available to common shareholders divided by the weighted average number of common shares outstanding. Earnings available to common shareholders equals net income - preferred dividends. The weighted number of common shares outstanding equals the number of shares outstanding during the year weighted by the proportion of the year they were outstanding.