Question

1. Earnings per Share, Price-Earnings Ratio, Dividend Yield

   The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:

   Common stock, $25 par value (no change during the year)	$4,500,000
   Preferred $8 stock, $100 par (no change during the year)	2,000,000

   The net income was $376,000 and the declared dividends on the common stock were $45,000 for the current year. The market price of the common stock is $9.00 per share.

   For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. If required, round your answers to two decimal places.

   a. Earnings per Share	$
   b. Price-Earnings Ratio
   c. Dividends per Share	$
   d. Dividend Yield		%

Answer 1

Average number of common shares outstanding = Common stock, par value/Par value per common share

= 4,500,000/25

= 180,000

Preferred stock dividend = Number of preferred shares outstanding x Dividend per preferred share

= 20,000 x 8

= 160,000

a)

Earnings per share = (Net income – Preferred stock dividend)/Average number of common shares outstanding

= (376,000 - 160,000)/180,000

= 216,000/180,000

= $1.2

b)

Price earnings ratio = Market price of 1 common share/Earnings per share

= 9/1.2

= 7.5

c)

Dividend per share = Cash dividend declared on common stock/Average number of common shares outstanding

= 45,000/180,000

= $0.25

d)

Dividend yield = Dividend per share/Market price per common share

= 0.25/9

= 2.78%