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, $45 par value (no change during the year) $8,100,000 Preferred $5 stock, $100 par (no change during the year) 2,000,000 The net income was $424,000 and the declared dividends on the common stock were $45,000 for the current year. The market price of the common stock is $14.40 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 %

2. Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net)						$1,503,000
Liabilities:
	Current liabilities			$201,000
	Note payable, 6%, due in 15 years			1,002,000
	Total liabilities					$1,203,000
Stockholders' equity:
	Preferred $2 stock, $100 par (no change during year)					$1,203,000
	Common stock, $10 par (no change during year)					1,203,000
Retained earnings:
	Balance, beginning of year	$1,284,000
	Net income	415,000		$1,699,000
	Preferred dividends	$24,060
	Common dividends	70,940		95,000
	Balance, end of year					1,604,000
Total stockholders' equity						$4,010,000
Sales						$32,528,000
Interest expense						$60,120

Assuming that total assets were $4,952,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities
b. Ratio of liabilities to stockholders' equity
c. Asset turnover
d. Return on total assets	%
e. Return on stockholders’ equity	%
f. Return on common stockholders' equity	%

Answer 1

Answer to Question 1.

Number of Common Stock outstanding = $8,100,000/ $45

Number of Common Stock outstanding = 180,000 Shares

Number of Preferred stock outstanding = $2,000,000/ $100

Number of Preferred Stock outstanding = 20,000 shares

Preferred Stock Dividend = 20,000 * $5

Preferred Stock Dividend = $100,000

Part a.

Earnings per Share = (Net Income - Preferred Stock Dividend)/ Common Stock outstanding

Earnings per share = ($424,000 - $100,000)/ 180,000

Earnings per share = $1.80

Part b.

Price - Earnings Ratio = Price per Share/ Earnings per share

Price- Earnings Ratio = $14.40/ $1.80

Price- Earnings Ratio = 8.00

Part c.

Dividend per share = Dividend Declared/ Common Stock outstanding

Dividend per share = $45,000/ 180,000

Dividend per share = $0.25

Part d.

Dividend Yield = Dividend per share/ Market price per share * 100

Dividend Yield = $0.25/ $14.40 * 100

Dividend Yield = 1.74%