Question

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)	$2,550,000
Preferred $10 stock, $100 par (no change during the year)	2,000,000

The net income was $438,000 and the declared dividends on the common stock were $42,500 for the current year. The market price of the common stock is $10.50 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

Solution a:

Preferred dividend = $2,000,000*$10/$100 = $200,000

Common shares outstanding = $2,550,000/ $15 = 170,000

Earnings per share = (Net income- preferred dividend) / common shares outstanding

= ($438000- $200000) / 170000 = $1.40

Solution b:

Price earning ratio = Market price / earnings per share = $10.50 / $1.40 = 7.5

Solution c:

Dividends per share = common stock dividend / common shares = $42500/170000 = $0.25

Solution d:

Dividend yield = dividend per share / market price = $0.25 / $10.50 = 2.38%