Earning per share, price-earnings ratio, dividend yield The following was taken

Question

Earning per share, price-earnings ratio, dividend yield

The following was taken from the financial statement of Tolbert Inc. for Dec. 31 of the current fiscal year:

Common stock, $20 par (no change during the year)             $10,000,000

Preferred $4 stock, $40 par (no change during the year)           2,500,000

The net income was $1,750,000 and the declared dividends on the common stock were $1,750,000 and the declared dividends on the common stock were $1,125,000 fornthe current year. The market price of the common stock is $45 per share. For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. Round to one decimal place, except earnings per share, which should be rounded to two decimal places.

Please show your work

Explanation / Answer

Preferred stock $40 par value; $ 2,500,000 means there are 62,500 shares of preferred stock outstanding, so preferred dividend at $4 per share = $250,000

For the common stock,
(a) the earnings per share
EPS = (Net income - preferred dividends)/Ave. number of common shares outstanding

=($1,750,000-250,000 ) / (10,000,000/20)

=1,500,000 / 500,000

EPS=$3

(b) the price-earnings ratio
P/E ratio = Market price per common share/EPS
= 45/3 = 15

(c) the dividends per share
$1,125,000/ 500,000 = $2.25

(d) the dividend yield
= Dividend per share/Market price per share
= $2.25/$45 = 0.05 or 5.0%

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