Question

A small company is started up that makes yarn. The company sells a total of 2,000  shares at $50

each to raise money to start the business. At the end of the​ year, the company makes ​$9000 in profits and pays out 3,000

in dividends. Complete parts​ (a) through​ (f) below.

​(a) What is the market capitalization of the​ company?

The market capitalization is

​(Simplify your answer. Do not include the​ $ symbol in your​ answer.)

​(b) What is the share​ price?

The share price.

​(Simplify your answer. Do not include the​ $ symbol in your​ answer.)

​(c) What is the earnings per​ share?

The earnings per share is

​$30003000.

​(Simplify your answer. Do not include the​ $ symbol in your answer. Round to two decimal places as​ needed.)

​(d) What is the PE​ ratio?

The PE ratio is

nothing.

​(Simplify your answer. Round to three decimal places as​ needed.)

​(e) What is the dividend in dollars per​ share?

The dividend per share is

​$30003000

​(Simplify your answer. Do not include the​ $ symbol in your answer. Round to two decimal places as​ needed.)

​(f) What is the dividend as a percentage of the share​ price?

The dividend per share is

nothing​%

of the share price.

​(Simplify your answer. Round to one decimal place as​ needed.)

Enter your answer in each of the answer boxes.

Answer 1

A) Market capitalization of company = 2000 shares * $50

= $ 100000

B) The share price is $50 each (assuming the company is not listed on stock exchange).

C) Earning per share = Profit/ No of shares

= 9000/2000

= $4.5

D) PE ratio = Price/ Earning per share

= 50/4.5

= 11.111

E) Dividend per share = Total Dividend/ No of shares

=$3000/ 2000 shares

= $ 1.5

F) Dividend Percentage to share price = (Dividend per share/ Value of share)*100

= ($1.5/50)*100

= 3%

All the above answers are given assuming that issue price is equal to market price of share.

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