Question

2. The following question is adapted from Financial Management for Executives (2nd ed.): The following data pertain to the PepsiCo, Inc. Using this data, calculate the following ratios for years 1 and 2 for PepsiCo: Price-earnings ratio, Dividend yield, and Dividend payout ratio.

1. Year 1 Year 2
   Earning per share.………………………$3.48 $3.42
   Stock price.........................……………77.03 62.55
   Dividends per share .....……..…………1.42 1.16

Answer 1

	Year 1	Year 2
Price-earnings ratio	22.13	18.29
Dividend yield	1.84%	1.85%
Dividend payout ratio	40.80%	33.92%

Explanation;

1. Price-earnings ratio:

For year 1;

Price-earnings ratio = Stock price / EPS

Price-earnings ratio = $77.03 / $3.48

= 22.13

For year 2;

Price-earnings ratio = $62.55 / $3.42

= 18.29

2. Dividend yield ratio:

For year 1;

Dividend yield ratio = Dividend per share / Stock price

Dividend yield ratio = $1.42 / $77.03

= 1.84%

For year 2;

Dividend yield ratio = $1.16 / $62.55

= 1.85%

3. Dividend payout ratio:

For year 1;

Dividend payout ratio = Dividend per share / Earnings per share

Dividend payout ratio = $1.42 / $3.48

= 40.80%

For year 2;

Dividend payout ratio = $1.16 / $3.42

= 33.92%