Question

Magnum, Inc. had reported the following balances:

	December 31, 2019		December 31, 2018
Net Income	$96,000.00		$52,000.00
Preferred Dividends	34,500		3,000
Total Stockholders' Equity	354,000		304,000
Stockholders' Equity attributable to Preferred Stock	20,000		20,000
Number of Common Shares Outstanding	8,000		12,000

11.	Compute Magnum's earnings per share for 2019. Select the formula, then enter the amounts to calculate the company's earnings per share for 2019.
12.	Compute Magnum's price/earnings ratio for 2019, assuming the market price is $35 per share. Select the formula, then enter the amounts to calculate the company's earnings per share for 2019.
13.	Compute Magnum's rate of return on common stockholders' equity for 2019. Select the formula, then enter the amounts to calculate the company's earnings per share for 2019.

Answer 1

11.

Weighted Average number of common shares outstanding = (Number of common shares outstanding in the beginning + Number of common shares outstanding in the end)/2

= (12,000 + 8,000)/2

= 10,000

Earnings per share = (Net income – Preferred stock dividend)/Weighted Average number of common shares outstanding

= (96,000 - 34,500)/10,000

= 61,500/10,000

= $6.15

12.

Price earnings ratio = Market price of 1 common share/Earnings per share

= 35/6.15

= 5.69

13.

Beginning common stockholders' equity = Total stockholders' equity - Stockholders' equity attributable to Preferred stock

= 304,000 - 20,000

= $284,000

Ending common stockholders' equity = Total stockholders' equity - Stockholders' equity attributable to Preferred stock

= 354,000 - 20,000

= $334,000

Average common stockholders’ equity = (Beginning common stockholders' equity + Ending common stockholders' equity)/2

= (284,000 + 334,000)/2

= $309,000

Return on common stockholders’ equity = (Net income – Preferred dividends)/Average common stockholders’ equity

= (96,000 - 34,500)/309,000

= 61,500/309,000

= 19.90%