8. The following information was taken from the financial statement of Fox Resou

Question

8. The following information was taken from the financial statement of Fox Resources for December 31, of the current fiscal year:
Common stock, $20 par value (no change during the year) $5,000,000
Preferred 10% stock, $40 par (no change during the year) 2,000,000
The net income was $600,000 and the declared dividends on the common stock were $125,000 for the current year. The market price of the common stock is $20 per share.
Required:
For the common stock, determine:
(1) The earnings per share;
(2) The price-earnings ratio;
(3) The dividends per share; and the dividend yield.
Round to one decimal place except earnings per share, which should be rounded to two decimal places.

Explanation / Answer

Net Income = $600,000 No of common stock = Total Value/Face value = $5,000,000/$20 = 250000 Div on Pref Shares = 10%*$2,000,000 = $200,000 So EPS = (Net Inc - Pref Dividend)/No of common stock ie EPS = (600,000-200,000)/250000 = $1.60................Ans (1) Price to Earning Ratio = Mkt Price/EPS = $20/$1.6 = 12.5.....Ans (2) No of common shares = 250,000 DIv declared = $125000 So Div per share = Total Div/No of common shares = 125000/250000=$0.5 per share DIvidend yield = Dividend/Mkt price = $0.50/$20 = 2.5% ......Ans (3)

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