Question

Selected financial information about Backpacking Resources, Inc., is as follows:

Total assets	$20,000,000
Total liabilities	$8,000,000
Total preferred stock	$3,000,000
Total annual preferred stock dividends	$210,000
Net profits after tax	$1,000,000
Number of shares of common stock outstanding	400,000 shares
Current market price of common stock	$57.00 a share
Annual common stock dividends	$2.28 a share

Using the company's financial information, compute the following:

A) Dividend yield. Round the answer to two decimal places. ________%

B) Book value per share. Round your answer to the nearest cent.
$_________per share

C) Earnings per share. Round your answer to the nearest cent.
$__________per share

D) P/E ratio. Round the answer to two decimal places.
__________times

Answer 1

A) Dividend yield

Dividend yield = Annual Dividend per share / Price per share

= 2.28 / 57

= .04

= 4%

B) Book value per share

Book Value per Share = (Shareholders' Equity - Preferred Equity) / Total Outstanding Common Shares

Shareholders' Equity = Total assets - Total liabilities

= 20,000,000 - 8,000,000

= 12,000,000

Book Value per Share = (12,000,000 - 3,000,000)/400,000

= 9,000,000/400,000

= 22.50

C) Earnings per share.

EPS = Earnings available to common stock holders / Number of shares of common stock outstanding

PAT		1,000,000
Less: Preferred Dividend		210,000
Earnings available to common stock holders		790,000
Shares Outstanding		400,000
EPS		1.98

D) P/E ratio

PE Ratio = Market price per share / Earnings per share.

= 57/1.98

= 28.79