Recent financial statements for Madison Company follow: Madison Company paid div
ID: 2460745 • Letter: R
Question
Recent financial statements for Madison Company follow:
Madison Company paid dividends of $3.31 per share during the year. The company's common stock had a market price of $71 per share on December 31. Assets at the beginning of the year totaled $1,797,600 and stockholders' equity totaled $1,140,800.
Earnings per share of common stock. (Round your answer to 2 decimal places.)
Balance Sheet
December 31 Assets Current assets: Cash $ 40,200 Accounts receivable, net 288,000 Merchandise inventory 324,000 Prepaid expenses 37,800 Total current assets 690,000 Plant and equipment, net 1,450,000 Total assets $ 2,140,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 360,000 Bonds payable, 10% 540,000 Total liabilities 900,000 Stockholders’ equity: Common stock, $5 par value $ 260,000 Retained earnings 980,000 Total stockholders’ equity 1,240,000 Total liabilities and stockholders' equity $ 2,140,000
Explanation / Answer
Solution:
a. Earnings Per Share of Common Stock
Earnings Per Share of Common Stock = Net Income / No. of Common Stock outstanding at the end of year = $107,400 / 52,000 = 2.065 or $2.07
No. of Common Stock Outstanding at the end of year = $260,000 / $5 = 52,000 Shares
b. Dividend Payout Ratio = Dividend Per Share / Earnings Per Share x 100 = $3.31 / $2.07 x 100 = 159.90%
C. Dividend Yield Ratio = Dividend Per Share / Market Price Per Share x 100 = $3.31 / $71 x 100 = 4.66%
D. Price-Earning Ratio = Market Price per Share / Earnings Per Share = $71 / $2.07 = 34.30 times
E. Return on Total Assets = Earnings Before Interest & Taxes / Average Total Assets = $217,000 / ($1,797,600 + $2,140,000)/2 = $217,000 / $1,968,800 x 100 = 11.02%
F. Return on Common Stockholder’s Equity = Net Income / Average Stockholder’s Equity = $107,400 / $1,190,400 x 100 = 9.02%
Average Stockholder’s equity = ($1,140,800 + $1,240,000)/2 = $1,190,400
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