Payout Ratio and Book Value per Share Divac Company has developed a statement of

Question

Payout Ratio and Book Value per Share

Divac Company has developed a statement of stockholders' equity for the year 2017 as follows:

Divac’s preferred stock is $100 par, 8% stock. If the stock is liquidated or redeemed, stockholders are entitled to $120 per share. There are no dividends in arrears on the stock. The common stock has a par value of $2 per share. Assume that the common stockholders have a right to the total net income of $85,000.

Required:

1. Determine the dividend payout ratio for the common stock. Round the payout ratio to four decimal places, but enter as a percentage to two decimal places. For example, .34678 rounds to .3468 and would be entered as 34.68, indicating 34.68%.
%

2. Determine the book value per share of Divac’s common stock. Round the book value per share to two decimals.
$ per share

Preferred Stock Paid-In
Capital—
Preferred Common Stock Paid-In
Capital—
Common Retained Earnings Balance, Jan. 1 $100,000 $50,000 $400,000 $40,000 $200,000 Stock issued 100,000 10,000 Net income 85,000 Cash dividend -31,000 Stock dividend 10,000 5,000 -15,000 Balance, Dec. 31 $110,000 $55,000 $500,000 $50,000 $239,000

Explanation / Answer

1)

dividend payout ratio = dividend paid / net income = ($31000 + $15000) / $85000 = 54.12%

2)

number of common shares = $500000 / $2 per share = 250000

Equity for common stockholders = $500000 + $50000 + $290000 = $840000

book value per share of Divac’s common stock

= Common stock equity / number of common shares

= $840000 / 250000

= $3.36

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