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)	$3,900,000
Preferred $5 stock, $100 par (no change during the year)	3,000,000

The net income was $982,000 and the declared dividends on the common stock were $65,000 for the current year. The market price of the common stock is $22.40 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		%

Answer 1

Common stock outstanding = 3900000/15 = 260000

Preferred stock outstanding = 3000000/100 = 30000

Annual Preferred dividends = 30000*5 = $150000

Earnings for Common Stockholders = 982000-150000= $832000

a. Earnings per Share =Earnings for Common Stockholders/Common Stock outstanding

Earnings per Share = 832000/260000= $3.20

b. Price-Earnings Ratio = Market price/Earnings per Share

Price-Earnings Ratio = 22.40/3.20 = 7

c. Dividends per Share = Common stock dividends/Common Stock outstanding

Dividends per Share = 65000/260000= $0.25

d. Dividend Yield = Dividends per Share/Market price

Dividend Yield = 0.25/22.40= 1.12%