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, $10 par value (no change during the year) Preferred $8 stock, $200 par (no change during the year) $3,000,000 8,000,000 The net income was $1,040,000 and the declared dividends on the common stock were $75,000 for the current year. The market price of the common stock is $18.00 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

Number of preferred shares = $8,000,000/$200 Number of preferred shares = 40,000 shares Preferred stock dividend = 40,000*$8 Preferred stock dividend = $320,000 Number of common shares = $3,000,000/$10 Number of common shares = 300,000 shares Earnings per share = (Net income - Preferred dividend)/Number of common shares outstanding Earnings per share = ($1,040,000-$320,000)/300,000 Earnings per share = $720,000/300,000 Earnings per share = $2.4 per share b) Price earnings ratio = Market price per share/Earnings per share Price earnings ratio = $18/$2.4 Price earnings ratio = 7.5

Dividends per share = Common stock dividend/Number of common shares outstanding Dividends per share = $75,000/300,000 Dividends per share = $0.25 Dividend yield = (Dividend per share/Market price share)*100 Dividend yield ratio = ($0.25/$18)*100 Dividend yield ratio = 1.39%