The balance sheet for Chaney Resources Inc. at the end of thecurrent fiscal year
ID: 2457697 • Letter: T
Question
The balance sheet for Chaney Resources Inc. at the end of thecurrent fiscal year indicated the following:
Bonds payable, 10% (issued in 1995, due in2015) 2,250,000
Preferred $25 stock, $200par 500,000
Common stock, $10par 2,500,000
Income before income tax was $625,000, and income taxes were$175,000 for the current year. Cash dividends paid on commonstock during the current year totaled $125,000. The commonstock was selling for $25 per share at the end of theyear. Determine each of the following (a) number of times bondinterest charges are earned, (b) number of times preferreddividends are earned, (c) earnings per share on common stock, (d)price-earnings ratio, (e) dividends per share of common stock, and(f) dividend yield. Round to one decimal place except earningsper share, which should be rounded to two decimal places
(Note: (c) ratio of net sales to assets,1.5)
Explanation / Answer
A.Number of times interest charges earned Income before incometax + interest expense Interest expense = 625,000 + 225,000 225,000 = 3.8 B. Number of times preferred dividends are earned Net income / preferred dividends = 625,000 -175,000 preferred dividends = 500,000 x25 = 62,500 62,500 200 = 7.2 C.Earnings per share on common stock Netincome - preferred dividends Number of common stock = 450,000 - 62,500 250,000 = 1.55 D.Price earnings ratio price per share / earnings per share = 10/ 1.55 = 6.5 E. Dividends per share of common stock Total dividends to common stock / no. of commonstock = 125,000 / 250,000 = 0.50 F.Dividend yield Annual dividend per share / stock price per share = 0.50 / 10 = 5 %
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