Naples Inc. has provided the following data concerning its stockholders’ equity

Question

Naples Inc. has provided the following data concerning its stockholders’ equity accounts:

Net income for year 2 was $30,400. Dividends on common stock during year 2 totaled $6,400. The market price of common stock at the end of year 2 was $3.08 per share. The company’s dividend yield ratio for year 2 is closest to

Year 2 Year 1 Bi-directional Learning Tool: Evaluating Financial Performance Exercise 2 Common stock, $5 par value. Additional paid-in capital-common stock Retained eamings $400,000 $400,000 60,000 60,000 654,000 630,000 S1,114,000 $1,090,000 Total stockholders' equity

Explanation / Answer

Step 1:- Calculating Number of Shares Outstanding.

No. of Common Share's Year 2 = Common stock ÷ Par value

= $400000 ÷ $5 / Share

= 80000 Share's

Step 2:- Calculating Dividends Per Share.

Dividends / Share = Common Dividends ÷ Common Share's

= $6400 ÷ 80000 Share's

= $0.08 / Share

Step 3:- Calculating Dividend Yield Ratio.

Dividend Yield Ratio = (Dividends / Share ÷ Market Price / Share) * 100

= (0.08 ÷ 3.08) * 100

= 2.60%

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