EPS, P/E Ratio, and Dividend Ratios The Stockholders\' Equity section of the bal
ID: 2749539 • Letter: E
Question
EPS, P/E Ratio, and Dividend Ratios
The Stockholders' Equity section of the balance sheet for Balla Enterprises at the end of 2014 appears as follows:
Net income for the year was $1,310,000. Dividends were declared and paid on the preferred shares during the year, and a quarterly dividend of $0.45 per share was declared and paid each quarter on the common shares. The closing market price for the common shares on December 31, 2014, was $27.55 per share.
Required:
1. Compute the following ratios for the common stock:
When required, round earnings per share and price/earnings ratio answers to two decimal places. For dividend payout and dividend yield ratios, round raw calculations to 4 decimal places, but enter each answer as a percentage to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86, indicating 17.86%.
8%, $100 par, cumulative preferred stock, 200,000 shares authorized, 50,000 shares issued and outstanding $5,000,000 Additional paid-in capital on preferred 2,500,000 Common stock, $5 par, 500,000 shares authorized, 400,000 shares issued and outstanding 2,000,000 Additional paid-in capital on common 18,000,000 Retained earnings 37,500,000 Total stockholders' equity $65,000,000Explanation / Answer
a. Earnings per Share = Net Income/No. of common stock shares outstanding Therefore, Earnings per Share 3.275 $ b. Price/Earnings Ratio = Share Price/Earnings per Share Hence, P/E Ratio = 8.4122 to 1 c. Dividend Payout Ratio = Dividends Paid/Net Income for the year Hence, Dividend Payout Ratio = (50000 X 100 X 8%) + (400,000 X 0.45)/1,310,000 44.27% d. Dividend Yield Ratio = Dividends Paid per share/Current Share Price Hence, Dividend Yield Ratio = (50000 X 100 X 8%)/50000 + (0.45)/27.55 30.67%
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