Question

In: Accounting

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

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 %

Solutions

Expert Solution

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%


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