Question

Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $25 par value (no change during the year) $7,500,000 Preferred $5 stock, $100 par (no change during the year) 4,000,000 The net income was $1,040,000 and the declared dividends on the common stock were $75,000 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

Average number of common shares outstanding = Common stock, par value/Par value per common share
= 7,500,000/25
= 300,000
Preferred stock dividend = Number of preferred shares outstanding x Dividend per preferred share
= 40,000 x 5
= 200,000
a)
Earnings per share = (Net income – Preferred stock dividend)/Average number of common shares outstanding
= (1,040,000-200,000)/300,000
= 840,000/300,000
= $2.8

b)
Price earnings ratio = Market price of 1 common share/Earnings per share
= 21/2.8
= 7.8

c)
Dividend per share = Cash dividend declared on common stock/Average number of common shares outstanding
= 75,000/300,000
= $0.25

d)
Dividend yield = Dividend per share/Market price per share
= 0.25/21
= 1.19%

a.	Earning per share	$2.8
b.	Price earning ratio	7.8
c.	Dividends per share	$0.25
d.	Dividend yield	1.19%

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks