Question

14-8 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, $40 par value (no change during the year)	$12,000,000
Preferred $4 stock, $200 par (no change during the year)	8,000,000

The net income was $760,000 and the declared dividends on the common stock were $75,000 for the current year. The market price of the common stock is $17.00 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

Average number of common shares outstanding = Common stock, par value/Par value per common share
= 12,000,000/40
= 300,000
Preferred stock dividend = Number of preferred shares outstanding x Dividend per preferred share
= 8,000,000/200 x 4
= $160,000

a)
Earnings per share = (Net income – Preferred stock dividend)/Average number of common shares outstanding
= (760,000 - 160,000)/300,000
= $2

b)
Price earnings ratio = Market price of 1 common share/Earnings per share
= 17/2
= 8.5

c)
Dividend per share = Cash dividend declared on common stock/Average number of common shares outstanding
= 75,000/300,000
= $0.25

d)
Dividend yield = Dividend per share/Market price per share
= 0.25/17
= 1.47%

Kindly comment if you need further assistance. T

hanks‼!