Question

Makers Corp. had additions to retained earnings for the year just ended of $301,000 The firm paid out $179,000 in cash dividends, and it has ending total equity of $4.84 million. The company currently has 150,000 shares of common stock outstanding. a. What are earnings per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What are dividends per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the book value per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. If the stock currently sells for $72 per share, what is the market-to-book ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) e. What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) f. If the company had sales of $4.98 million, what is the price-sales ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. a. Earnings per share b. Dividends per share Book value per share d. Market-to-book ratio e Price-earnings ratio f. Price-sales ratio times times times

Answer 1

Solution

As given,
Additions to Retained Earnings, or Total Earnings during the year = $301,000
Cash dividend paid = $179,000
Number of Common Stock outstanding = 150,000
Value of Equity = $4,840,000

(a) Earnings per share = Total earnings / Number of shares outstanding
= $(301000 / 150000)
= $2.01 (Approx.)

(b) Dividend per share = Cash Dividend / Number of shares outstanding
= $(179,000 / 150,000)
= $1.19 (Approx.)

(c) Book value per share = Value of equity / Number of shares outstanding
= $(4,840,000 / 150,000)
= $32.27 (Approx.)

(d) Current Market Price = $72
Book Value per share = $32.27
Therefore, Market-to-book ratio = Current Market Price / Book Value
= 72 / 32.27
= 2.23 Times (Approx.)

(e) Price-Earnings Ratio = Current Market Price / Earnings per share
= 72 / 3.01
= 23.92 Times (Approx.)

(f) Price-sales ratio = Market capitalization / Total Revenue,
Where, Market Capitalization = Current Market Price x Number of shares outstanding
= $72 x 150,000
= $10,800,000, or $10.8 Million
and, Total Revenue = $4.98 Million
Therefore, Price-sales ratio = 10.8 / 4.98 = 2.17 (Approx.)

So, the overall view of the answers as follows,
a) Earnings per share = $2.01
b) Dividend per share = $1.19
c) Book value per share = $32.27
d) Market-book ratio = 2.23 Times
e) Price-earnings ratio = 23.92 Times
f) Price-sales ratio = 2.17 Times