Question

The Castle Company recently reported net profits after taxes of $10.5 million. It has 2 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company's stock currently trades at $57 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 $2.96 per share to common stockholders. Round the answer to two decimal places.
   %

Answer 1

Answer of Part a:

Earnings Per Share = (Net Income – Preferred Dividend) / No. of Common Stock Outstanding
Earnings Per Share = ($10,500,000 - $1,000,000) / 2,000,000
Earnings Per Share = $9,500,000 / $2,000,000
Earnings Per Share = $4.75

Answer of Part b:

Price Earning Ratio = Market Value per share / Earnings Per Share
Price Earning Ratio = $57 / $4.75
Price Earning Ratio = $12

Answer of Part c:

Dividend Yield = Annual Dividend / Share Price * 100
Dividend Yield = $2.96 / $57 * 100
Dividend Yield = 5.19%