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, $25 par value (no change during the year)	$5,500,000
Preferred $5 stock, $200 par (no change during the year)	6,000,000

The net income was $678,000 and the declared dividends on the common stock were $55,000 for the current year. The market price of the common stock is $18.00 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

first let us know the number of shares outstanding:

common stock = $5,500,000/25

=>220,000 shares.

preferred stock =$6,000,000/$200

=>30,000 shares.

now.

a.earnings per share	$2.4
b price earnings ratio.	7.5 times
c dividends per share	$0.25
d dividend yield	1.39%

working note:

earnings per share = (net income - preferred dividends) / number of common shares

=> (678,000-($5*30,000 shares)) / 220,000

=>$528,000/220,000

=>$2.40.

b.price earnings ratio

=> market price per share / earnings per share = $18.00 / 2.4

=>7.5 times

c.divdend per share = $55,000/220,000 shares =>$0.25.

d.divdend yield = dividend per share / market price

=>$0.25/$18.00

=>0.013888

=>1.39%