Question

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)	$11,200,000
Preferred $5 stock, $100 par (no change during the year)	4,000,000

The net income was $1,224,000 and the declared dividends on the common stock were $80,000 for the current year. The market price of the common stock is $22.40 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.

Average number of common shares outstanding = Total amount of common shares x Par value per common share

= 11,200,000/35

= 320,000

Annual preferred stock divided = Number of preferred shares x Divided per share

= 40,000 x 5

= $200,000

Earning per share = ( Net income - Preferred stock dividend)/ Average number of common shares outstanding

= (1,224,000-200,000)/320,000

= 1,024,000/320,000

= $3.2

b.

Price earning ratio = Market price of 1 common share/Earning per share

= 22.40/3.2

= 7

c.

Dividend per share = Cash dividend declared on common stock / Average number of shares outstanding

= 80,000/320,000

= $0.25

d.

Dividend yield = Dividend per share/ Marker price per share

= 0.25/22.40

= 1.11%

a. Earnings per Share	$	3.2
b. Price-Earnings Ratio	7	times
c. Dividends per Share	$	0.25
d. Dividend Yield	1.11	%

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