Question

During Year 3, Banker Corporation reported after-tax net income of $3,560,000. During the year, the number of shares of stock outstanding remained constant at 9,980 of $100 par, 8 percent preferred stock and 397,000 shares of common stock. The company’s total stockholders’ equity is $19,500,000 at December 31, Year 3. Banker Corporation’s common stock was selling at $52 per share at the end of its fiscal year. All dividends for the year have been paid, including $4.90 per share to common stockholders.

a. Compute the earnings per share. (Round your answer to 2 decimal places.)

b. Compute the book value per share of common stock. (Round your answer to 2 decimal places)

c. Compute the price-earnings ratio. (Round intermediate calculations and final answer to 2 decimal places.)

d. Compute the dividend yield. (Round your answer to 2 decimal places)

Answer 1

Answer:

Compute the following cases,

a) Earnings per share.

We know that,

Earnings per share = (Net income-Preferred dividends) / (Average o/s common shares)

=($3,560,000-($100*9980*8%)) /  397,000

=(3,560,000-79,840) / 397000

Earnings per share =$8.76

b)Book value per share of common stock

We know that,

Book  value per share of common stock = (Total equities-Total liabilities-Preferred rights) / (average o/s common shares)

=($19,500,000- 0-$(100*9980)) / 397000

=($19500000-998000) / 397000

Book  value per share of common stock=$46.6

c) Price earning ratio

We know,

Price earning ratio = Common stock / Earning per share

= $52 / $8.76

Price earning ratio = 5.93 times

d) Dividends yield

We know,

Dividends yield = (Common dividend / Common stock price)

= ($4.90 / $52)*100

Dividends yield = 9.4%