From the following data, determine for the current year the (a) rate earned on t
ID: 2381552 • Letter: F
Question
From the following data, determine for the current year the (a) rate earned on total assets, (b) rate earned on stockholders' equity, (c) rate earned on common stockholders' equity, (d) earnings per share on common stock, (e) price-earnings ratio on common stock, and (f) dividend yield on common stock. Assume that the current market price per share of common stock is $27. (Present key figures used in your computations.)
Current
Preceding
Year
Year
Current assets
$ 735,000
$ 820,000
Property, plant, and equipment
1,500,000
1,400,000
Current liabilities
(non-interest-bearing)
155,000
140,000
Long-term liabilities, 12%
400,000
400,000
Preferred 10% stock
250,000
250,000
Common stock, $25 par
1,200,000
1,200,000
Retained earnings:
Beginning of year
230,000
160,000
Net income for year
85,000
155,000
Preferred dividends declared
(25,000)
(25,000)
Common dividends declared
(60,000)
(60,000)
Current
Preceding
Year
Year
Current assets
$ 735,000
$ 820,000
Property, plant, and equipment
1,500,000
1,400,000
Current liabilities
(non-interest-bearing)
155,000
140,000
Long-term liabilities, 12%
400,000
400,000
Preferred 10% stock
250,000
250,000
Common stock, $25 par
1,200,000
1,200,000
Retained earnings:
Beginning of year
230,000
160,000
Net income for year
85,000
155,000
Preferred dividends declared
(25,000)
(25,000)
Common dividends declared
(60,000)
(60,000)
Explanation / Answer
a)
85,000/735,000= 11.565%
b)
Rate earned on stockholder's equity = Net Income / Total Stockholder's Equit
85,000 / (250,000 + 1,200,000 + 230,000)= 5.06%
c)
85,000-(25,000)/1,200,000=.05
d)
Earnings per share = Net Income - Perferred Dividends / Common Shares OUtstanind
(85,000 - 25,000) / (1,200,000 / 25) = $1.25
e)
Price-Earnings Ratio = Market Price / EPS
$27 / $1.25 = $21.6
f)
Shares of stock = 1,200,000 / 25 par = 48000
Dividends per share = 60,000 / 48,000 = 1.25
Dividend yield = 1.25 / 27 = 4.63%
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