Question

7.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, $45 par value (no change during the year) $12,600,000 Preferred $10 stock, $200 par (no change during the year) 8,000,000 The net income was $960,000 and the declared dividends on the common stock were $70,000 for the current year. The market price of the common stock is $16.00 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

	First of all let us calculate no. of Equity shares and Prefered shares outstanding:
	No. of Prefered shares outstanding = $8,000,000/$200 = 40,000 shares
	No. of Common shares outstanding = $12,600,000/$45 = 280,000 shares
a	Calculation of Earning Per Share(EPS)
	EPS = Earnings for Common shareholders
	Avg. common shares outstanding
	Earning for Common shareholders = Net Income - Prefered Dividend
	Earning for Common shareholders = $960,000 - (40,000 shares*$10)
	Earning for Common shareholders = $960,000 - $400,000
	Earning for Common shareholders = $560,000
	EPS = $560,000/280,000 shares
	EPS = $ 2 per shares
b	Price Earning Ratio = Market price per share
	EPS
	Price Earning Ratio = $16/$2
	Price Earning Ratio = 8 times
c`	Dividend Per share = Dividend on common stock
	Common shares outstading
	Dividend Per Share = $70,000/280,000 shares
	Dividend Per Share = $0.25 per share
d	Dividend Yeild = Common Dividend per share
	Market Price
	Dividend Yeild = $0.25/$16
	Dividend Yeild = 1.5625%