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Use the following information to answer questions 53-55. During 2018, Amazing Corp. reported after-tax net income...

Use the following information to answer questions 53-55.

During 2018, Amazing Corp. reported after-tax net income of $900,000 and paid $175,000 in common dividends. The weighted average number of common shares issued in 2018 was 200,000. There are no preferred shares issued. At year end, Amazing's common shares are selling for $81 per share on the Toronto Stock Exchange.

Amazing's basic earnings per share for 2018 is

Question 53 options:

	$22.22.
	$3.63.
	$4.50.
	$5.14.

Amazing's price-earnings ratio is

Question 54 options:

	180 times.
	12 times.
	18 times.
	6 times.

Amazing's payout ratio for 2018 is

Question 55 options:

	$1.00.
	5.6%.
	22.2%.
	19.4%.

Solutions

Expert Solution

Requirement 1:-

Earnings Per share = (Net Income - Preferred Dividends)/Common Shares outstanding

Earnings Per share = $900,000/200,000 shares

Earnings Per Share = $4.5 per share

Based on the calculation above, the correct answer is Option C - $4.5

Option A, Option B and Option D are incorrect based on the above calculations

Requirement 2:-

Price Earnings Ratio = Market price of share/Earnings per share

Price Earnings Ratio = $81/$4.5

Price Earnings Ratio = 18 times

The correct answer is Option C - 18 times as can be observed from the calculation above.

Option A, Option B and Option D are incorrect per the above calculations and considerations.

Requirement 3:-

The Payout Ratio is calculated using the following formula:-

Payout Ratio = Dividends/Net Income

Payout Ratio = $175,000/$900,000

Payout Ratio = 19.44%

Based on the calculation above, the correct answer is Option D - 19.4%.

Option A, Option B and Option C are incorrect as they represent incorrect Payout Ratios.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 1 year ago

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