Question

Earnings per Share, Price-Earnings Ratio, Dividend Yield

The following information was taken from the financial statements of Finn Resources Inc. for December 31 of the current fiscal year:

Common stock, $45 par value (no change during the year)	$6,750,000
Preferred $5 stock, $100 par (no change during the year)	2,000,000

The net income was $520,000 and the declared dividends on the common stock were $114,000 for the current year. The market price of the common stock is $22.4 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

Stock Type	Capital ($)	Par Value ($)	No of Shares
Common Stock	6750000	45	150000
Preferred Stock	2000000	100	20000

Net Income	$520000
Less: Dividends for preference shares ($5*20000)	$100000
Income available to Common Stock holders	$420000

Earnings per Share

=Income available for Common Stock holders / No. of Common Stock

=420000/150000

$2.8

Price -earnings ratio

=Market Price of Common Stock / Earnings per share

=22.4 / 2.8

8

Dividends per share
Dividend Declared	114000
No of Shares	150000
Dividend per share	114000/15000
	$0.76

Dividend yield

=Annual Dividend per share / Market price of share

=$0.76/$22.4

3.39%