Question

# Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements...

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, \$15 par value (no change during the year) \$4,350,000 Preferred \$4 stock, \$200 par (no change during the year) 8,000,000

The net income was \$624,000 and the declared dividends on the common stock were \$72,500 for the current year. The market price of the common stock is \$12.00 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 %

Number of common stock outstanding = Value of Common Stock / Par Value
Number of common stock outstanding = \$4,350,000 / \$15
Number of common stock outstanding = 290,000

Number of preferred stock outstanding = Value of preferred Stock / Par Value
Number of preferred stock outstanding = \$8,000,000 / \$200
Number of preferred stock outstanding = 40,000

Preferred Stock Dividend = Number of preferred stock outstanding * Preferred Stock Dividend per share
Preferred Stock Dividend = 40,000 * \$4
Preferred Stock Dividend = \$160,000

Net Income = \$624,000
Common Stock Dividend = \$72,500
Market price of common stock = \$12.00

Earnings per share = (Net Income - Preferred Stock Dividend) / Number of common stock outstanding
Earnings per share = (\$624,000 - \$160,000) / 290,000
Earnings per share = \$1.60

Price-Earnings Ratio = Market price of common stock / Earnings per share
Price-Earnings Ratio = \$12.00 / \$1.60
Price-Earnings Ratio = 7.50

Dividends per share = Common Stock Dividend / Number of common stock outstanding
Dividends per share = \$72,500 / 290,000
Dividends per share = \$0.25

Dividend Yield = Dividends per share / Market price of common stock
Dividend Yield = \$0.25 / \$12.00
Dividend Yield = 0.0208
Dividend Yield = 2.08%