Question

The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:

Common stock, $40 par value (no change during the year)	$9,600,000
Preferred $5 stock, $100 par (no change during the year)	3,000,000

The net income was $822,000 and the declared dividends on the common stock were $60,000 for the current year. The market price of the common stock is $21.00 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

Answer a.

Number of preferred stock = Value of preferred stock / Par value per share
Number of preferred stock = $3,000,000 / $100
Number of preferred stock = 30,000

Preferred Stock Dividend = Number of preferred stock * Dividend per share
Preferred Stock Dividend = 30,000 * $5
Preferred Stock Dividend = $150,000

Number of common stock = Value of common stock / Par value per share
Number of common stock = $9,600,000 / $40
Number of common stock = 240,000

Earnings per share = (Net Income - Preferred stock dividend) / Number of common stock
Earnings per share = ($822,000 - $150,000) / 240,000
Earnings per share = $672,000 / 240,000
Earnings per share = $2.80

Answer b.

Price-earnings Ratio = Market price of common stock / Earnings per share
Price-earnings Ratio = $21.00 / $2.80
Price-earnings Ratio = 7.50

Answer c.

Dividend per share = Common stock dividend / Number of common stock
Dividend per share = $60,000 / 240,000
Dividend per share = $0.25

Answer d.

Dividend Yield = Dividend per share / Market price of common stock
Dividend Yield = $0.25 / $21.00
Dividend Yield = 1.19%