If a $24 per share stock has a P/E ratio of 12 and pays out 40 percent of its pr

Question

If a $24 per share stock has a P/E ratio of 12 and pays out 40 percent of its profits in dividends, (a) How much profit is it earning per share? Instructions: Enter your response rounded to two decimal places. $2.00 (b) How large is its dividend? Instructions: Enter your response rounded to two decimal places. $0.80 (c) What is the implied rate of cash return? Instructions: Enter your response as a percent rounded to the nearest two decimals. __% (This answer is not 38%, 40% or 20%, as previously stated. This is the only answer I need. I can't seem to figure it out.)

Explanation / Answer

P/E Ratio = 12.00 Market price = 24.00 Earning Per Share = 2.00 Payout ratio = 40% Retention ratio = 60% Cash return in the form of dividend = 0.80 Price of stock = 24.00 Cash return = .80/24 = 3.33%

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