Question

# Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements...

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 %

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%

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