Question

Context Corporation reported shareholders’ equity on December 31, 20X3: Common stock - $10 par value; 50,000...

Context Corporation reported shareholders’ equity on December 31, 20X3:

Common stock - $10 par value; 50,000 shares authorized
20,000 shares issued and outstanding....................... $200,000
Paid-in capital in excess of par value, common stock....... $30,000
Retained earnings...........................................$135,000

Dec. 31, Context Corporation's statement of equity looked like this:

Statement of equity
20000 shares issued and outstanding 200000
Paid in capital in exxess of par 30000
Retained earnings 253250
Total 483250
Less Treasury stock (1250*20) 25000
Total equity section 458250
Retained earnings
Beginning 135000
Add Net income 194000
Total 329000
Less Cash dividend 73500 (36000+37500)
Less Treasury stock 2250
Ending retained earnings

253250

Provide a rationale between 200 and 300 words in length for buying. or not buying this stock based on the financial information presented above: Based on Earning per share, Price-Earning Ratio, Dividend Yield, Book Value per share.

Business   Accounting   
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Homework Answers

Answer #1

earning per share= profits available to equity shareholders/ no of share outstanding

194000/(20000-1250)=10.35

price earning ratio=share price at market values / earning per ratio=20/10.35=$1.93

if price earning ratio is higher it shows the higher earning growth in the future compared to companies with a lower price earnings ratio.

DIVIDEN YIELD:-annual dividends per share/ price of a share

annual dividends per share =73500/18750=3.92

price of a share=20

dividend yield=3.92/20=19.6%

if this percentage is higher it would be beneicial for those investors who seeks regular and continuous flow of dividends but at the same time it would minimize the growth of dividends.

book value per share=total shareholder equity/ total outstanding no of shares

=458250/18750=24.44

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