Question

Consider the following information about Earl Grey, Inc.

• Total assets $250 million
• Total debt $110 million
• Preferred stock $ 35 million
• Common stockholders’ equity $105 million
• Net profits after taxes $25.5 million
• Number of preferred stock outstanding 1.5 million shares
• Number of common stock outstanding 9 million shares
• Preferred dividends paid $2.5 per share
• Common dividends paid $0.70 per share
• Market price of the preferred stock $32.55 per share
• Market price of the common stock $26.00 per share

Use the information above to find the following.

1. The company’s book value
2. Its book value per share
3. The stock’s earnings per share (EPS)
4. The dividend payout ratio
5. The dividend yield on the common stock
6. The dividend yield on the preferred stock

Answer 1

Solution:

1.Calculation of Book value of company

Book vlaue of company=Shareholder's Equity or Total assets-total liablities

=$105 million+$35 million or $250 million-$110 million

=$140 million

Thus Book value of company is $140 million

2.Calculation of  book value per share

Book value per share=Shareholders' Equity-Preferred stock/Number of common stock outstanding

=$140 million-$35 million/9 million

=$11.67 per share

Thus book value per share is $11.67 per share

3.Calculation of stock’s earnings per share

Earnings per share=Net Income-Preferred dividend/Number of common stock outstanding

=[$25.5 million-($2.5*1.5 million shares)]/9 million

=$21.75 million/9 million

=$2.42 per share

Thus Earnings per share is $2.42 per share

4.Calculation of dividend payout ratio

Dividend Payout ratio=(Common dividends per share/EPS)*100

=( $0.70/$2.42)*100

=28.93%

5&6.Calculation dividend yield

dividend yield =Dividend/Market Price of share

dividend yield on the common stock=$0.70/$26.00

=0.027 or 2.7%

dividend yield on the preferred stock=$2.5/$32.55

=0.077 or 7.70%