Question

Selected financial information about Backpacking Resources, Inc., is as follows:

Total assets	$10,000,000
Total liabilities	$5,000,000
Total preferred stock	$1,000,000
Total annual preferred stock dividends	$70,000
Net profits after tax	$500,000
Number of shares of common stock outstanding	150,000 shares
Current market price of common stock	$48.00 a share
Annual common stock dividends	$1.44 a share

Using the company's financial information, compute the following:

1. Dividend yield. Round the answer to two decimal places.
   %
   
2. Book value per share. Round your answer to the nearest cent.
   $   per share
   
3. Earnings per share. Round your answer to the nearest cent.
   $   per share
   
4. P/E ratio. Round the answer to two decimal places.
     times
   

Answer 1

(a)-Dividend Yield

Dividend Yield = (Common Stock dividend per share / Current Market Price per share) x 100

= ($1.44 / $48.00) x 100

= 3.00%

(b)-Book value per share

Stockholders Equity = Total Assets – Total liabilities – Preferred Stock

= $100,00,000 - $50,00,000 - $10,00,000

= $40,00,000

Book value per share = Stockholders Equity / Number of shares of common stock outstanding         

= $40,00,000 / 150,000 Common Shares outstanding

= $26.67 per share

(c)-Earnings per share

Earnings per share = [Net profits after tax - Total annual preferred stock dividends] / Number of shares of common stock outstanding       

= [$500,000 - $70,000] / 150,000 Common Shares outstanding

= $430,000 / 150,000 Common Shares outstanding

= $2.87 per share

(d)-P/E Ratio

P/E Ratio = Current market price of common stock / Earnings per share

= $48.00 / $2.87 per share

= 16.72 Times