Question

The stock of North American Dandruff Company is selling at $80 per share. The firm pays a dividend of $2.50 per share. (a) What is the dividend yield? (Round your answer to 3 decimal places. Omit the "%" sign in your response.) (b) If the firm has a payout rate of 50 percent, what is the firm’s P/E ratio? (Enter numeric value only.)

Answer 1

(a) Dividend Yield = 3.125 percent

(b) P/E Ratio = 16 times

Step-by-step explanation:

(a) Dividend yield =
`(Current year dividend)/(Price of the share)` X 100

Current year dividend = $2.5

Company's selling price of share = $80

Dividend yield =
`(2.5)/(80) X100` = 3.125 percent

(b) Given payout ratio is 50 percent that means earnings X 50% = $2.5

Earnings =
`(2.5)/(0.5)` = $5

P/E ratio = Price / Earnings = $80/$5 = 16 times.

Dividend Yield = 3.125 percent

P/E Ratio = 16 times