Question

Earnings per Share, Price-Earnings Ratio, Dividend Yield

The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:

Common stock, $35 par value (no change during the year)	$5,250,000
Preferred $5 stock, $100 par (no change during the year)	2,000,000

The net income was $310,000 and the declared dividends on the common stock were $37,500 for the current year. The market price of the common stock is $11.20 per share.

For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. If required, round your answers to two decimal places.

a. Earnings per Share	$
b. Price-Earnings Ratio
c. Dividends per Share	$
d. Dividend Yield		%

Answer 1

(a)-Earnings per Share

Preferred Dividends = $100,000 [($2,000,000 / $100) x $5.00]

Number of common shares = 150,000 Shares [$5,250,000 / $35.00]

Therefore, the Earnings per Share = [Net Income – Preferred Dividends] / Number of common shares outstanding

= [$310,000 - $100,000] / 150,000 Shares

= $210,000 / 150,000 Shares

= $1.40 per share

(b)-Price-Earnings Ratio

Price-Earnings Ratio = Market price per share / Earnings per Share

= $11.20 per share / $1.40 per share

= 8.00 Times

(c)-Dividends per Share

Dividends per Share = Total common dividends paid / Number of common shares

= $37,500 / 150,000 shares

= $0.25 per share

(d)-Dividend Yield

Dividend Yield = [Dividends per share / Market price per share] x 100

= [$0.25 / $11.20] x 100

= 2.23%