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Answer: $4.47.
## Explanation To calculate normalized EPS using the average ROE method: 1. **Calculate average ROE**: - ROE values: 12.00%, 7.62%, 12.89%, 8.33% - Average ROE = (12.00% + 7.62% + 12.89% + 8.33%) / 4 = 10.21% 2. **Calculate average book value**: - Book values: $40.00, $42.00, $45.00, $48.00 - Average book value = ($40.00 + $42.00 + $45.00 + $48.00) / 4 = $43.75 3. **Calculate normalized EPS**: - Normalized EPS = Average ROE × Average book value - Normalized EPS = 10.21% × $43.75 = $4.47 Therefore, the normalized EPS is closest to **$4.47**, which corresponds to option B.
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An analyst gathers the following information about a company:
| Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|
| Book value per share | $40.00 | $42.00 | $45.00 | $48.00 |
| ROE | 12.00% | 7.62% | 12.89% | 8.33% |
Over the 4-year period, the normalized EPS by the method of average ROE is closest to:
A
$3.64.
B
$4.47.
C
$4.90.