The following information was taken from the financial statements of bailey inc.
ID: 2350881 • Letter: T
Question
The following information was taken from the financial statements of bailey inc. for December 31 of the current fiscal year.Common stock $10 par value (no change during the year) 4.000.000
Preferred $5 stock, $25 par (no change during the year) 1.250.000
The net income was $1,250,000 and the declared dividends on the common stock were $800,000 for the current year. The market price of the common stock is $40 per share
For the common stock, determine
a. Earnings per share
b. Price-earnings ratio
c. Dividends per share
d. The dividends yield
Round to one decimal place except earnings per share, which should be rounded to two decimal places
Explanation / Answer
Earnings per share = (Net income - preferred stock dividends)/Ave. No. of common shares = ($1,250,000 - $90,000)/400,000= $2.9 (b) Price-earnings ratio = current stock price/earnings per share (EPS) = $40/2.9 = 13.79 (c) Dividends per share = 800,000/400,000 = 2 (d) Dividend yield = dividends per share/market price of common stock 2/40 = 5%
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