Question

Computing the Dividend Yield and the Dividend Payout Ratio The income statement, statement of retained earnings, and balance sheet for Santiago Systems are as follows: Santiago Systems Income Statement For the Year Ended December 31, 20X2 Amount Percent Net sales $5,345,000 100.0% Less: Cost of goods sold (3,474,250) 65.0 Gross margin $1,870,750 35.0 Less: Operating expenses (1,140,300) 21.3 Operating income $730,450 13.7 Less: Interest expense (27,000) 0.5 Income before taxes $703,450 13.2 Less: Income taxes (40%)* (281,380) 5.3 Net income $422,070 7.9 * Includes both state and federal taxes. Santiago Systems Statement of Retained Earnings For the Year Ended December 31, 20X2 Balance, beginning of period $1,205,500 Net income 422,070 Total $1,627,570 Preferred dividends (40,000) Dividends to common stockholders (150,000) Balance, end of period $1,437,570 Santiago Systems Comparative Balance Sheets At December 31, 20X1 and 20X2 20X1 20X2 Assets Current assets: Cash $1,900,000 $2,100,000 Marketable securities 350,000 400,000 Accounts receivable (net) 625,000 675,000 Inventories 230,000 240,000 Other 50,000 50,000 Total current assets $3,155,000 $3,465,000 Property and equipment: Land $900,000 $900,000 Building and equipment (net) 1,240,800 1,192,800 Total long-term assets $2,140,800 $2,092,800 Total assets $5,295,800 $5,557,800 Liabilities and Stockholders' Equity Current liabilities: Notes payable, short term $247,300 $256,230 Accounts payable 240,000 250,000 Current maturity of long-term debt 3,000 4,000 Accrued payables 150,000 160,000 Total current liabilities $640,300 $670,230 Long-term liabilities: Bonds payable, 9% 300,000 300,000 Total liabilities $940,300 $970,230 Stockholders' equity: Preferred stock, $25 par, 8% $500,000 $500,000 Common stock, $1.00 par 150,000 150,000 Additional paid-in capital* 2,500,000 2,500,000 Retained earnings 1,205,500 1,437,570 Total stockholders' equity $4,355,500 $4,587,570 Total liabilities and stockholders' equity $5,295,800 $5,557,800 * For common stock only. Also, assume that the market price per common share is $20. Required:

1. Compute the dividends per share. $

2. Compute the dividend yield. %

3. Compute the dividend payout ratio. Round your answer to two decimal places. %

Answer 1

	Computation of Dividend Per Share, Dividend Yield and Dividend payout ratio:
	Particulars	Amount($)
A	Net Sales	53,45,000
B	Cost of Goods Sold	34,74,250
C	Gross Margin(A-B)	18,70,750
D	Operating Expenses	11,40,300
E	Operating Income(C-D)	7,30,450
F	Interest Expenses	27,000
G	Income Before Taxes=(E-F)	7,03,450
H	Income Tax =(40% on G)	2,81,380
I	Net Income	4,22,070
J	Preference Dividend	40000
K	Earnings Available to common stockholders(I-J)	3,82,070
L	Common stock	150000
M	Earning Per share=(K/L)	2.55
N	Dividend to common stockholders	1,50,000
O	Dividend Per share=(N/L)	1
P	Market Price of common share	20
Q	Dividend yield (%age)=(O*100/P)	5%
R	Dividend Payout Ratio=(O/M)	0.39