Question

# The following information is given about Global Electronic Co. for the year 2009: Net Sales \$2,000,000...

The following information is given about Global Electronic Co. for the year 2009:
Net Sales \$2,000,000
Return on Equity 25%
Debt to Equity ratio 30%
Net profit margin 5%
Number of common stocks outstanding 20,000 shares, Preferred stocks (5%, \$100 par, and 1,000 shares issued) and no change in the number of common stocks outstanding.
P/B (Market Price to Book value per share) 2.3 times
Percentage of earning retained 40%
Instructions: Find the following: (a) Market Price per Common Shares. (b) Dividend per common shares (c) Total Assets. (d) Dividend Payout.

#### Homework Answers

Answer #1

Answer 1

Net Profit = Net Sales * Net Profit Margin = 2000000*5% = 100,000

Earnings Available to Equity Shares = Net Profit - Pref Dividend = 100,000 - (5%*100*1000) = 95000

No of Outstanding Shares = 20000

Earnings Per Share = Earning available for Equity / No of Equity Shares = 95000 / 20000 = \$ 4.75

Market Price Per Share = Earnings Per Share / ROE = 4.75 / 25% = \$19

Answer 2

Dividend Per Share = Earnings Per Share* (1 - Percentage of Earnings retained) = 4.75*(1-0.40) = \$ 2.85

Answer 3

ROE = Asset Turnover*Profit Margin*Debt Equity Ratio

0.25 = Assets Turnover*0.05*0.30

Assets Turnover = 0.25 /(0.05*0.30) = 16.667 times

Assets Turnover = Sales / Assets

16.67 = 2000000 / Assets

Assets = \$ 120000

Answer 4

Dividend Payout Ratio = Dividend Per Share / Earning Per Share = 2.85 / 4.75 = 0.60 or 60%

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