Question

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		%

Answer 1

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

Answer a.

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

Answer b.

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

Answer c.

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

Answer d.

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