Question

The Castle Company recently reported net profits after taxes of $14.3 million. It has 5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company's stock currently trades at $30 per share.

1. Compute the stock's earnings per share (EPS). Round the answer to two decimal places.
   $   per share
   
2. What's the stock's P/E ratio? Round the answer to two decimal places.
   $   times
   
3. Determine what the stock's dividend yield would be if it paid $0.84 per share to common stockholders. Round the answer to two decimal places.
   %

Answer 1

a. The EPS is computed as shown below:

= (Net profit after taxes - preferred dividends) / Number of common stock outstanding

= ($ 14.3 million - $ 1 million) / 5 million

= $ 2.66

b. PE ratio is computed as follows:

= Market price per share / Earnings per share

= $ 30 / $ 2.66

= 11.28 times Approximately

c. The dividend yield is computed as follows:

= Dividend per share / Market price per share

= $ 0.84 / $ 30

= 2.80%

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