Common Stockholders' Profitability Analysis A company reports the following: Net income $1,000,000 Preferred dividends 50,000 6,250,000...

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Common Stockholders Profitability Analysis A company reports the following: Net income $1,000,000 Preferred dividends 50,000

Earnings per Share and Price Earnings Ratio A company reports the following: Net income $410,000 Preferred dividends $60,000

business accounting

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Answer 1

Answer #1

Solution 1:

Return on stockholder's equity = Net income / Average stockholder's equity

= $1,000,000 / $6,250,000 = 16%

Return on common stockholder's equity = (Net income - Preferred dividend) / Average common stockholder's equity

= ($1,000,000 - $50,000) / $3,800,000 = 25%

Solution 2:

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

= ($410,000 - $60,000) / 50000 = $7 per share

Price earning ratio = Market price per share / Earning per share = $84 / $7 = 12 times

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Answer 2

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