Question

A gift shop earned net profits after taxes of 15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of 1 million a year. The company's stock currently trades at 60 per share. a. What is the company's earning per share? b. What's the stock's P/E ratio? c. What would be the stock's dividend yield if it paid1.75 per share to common stockholders?

Answer 1

The company's earning per share is $6.32, the stock's P/E ratio is 9.49, and the stock's dividend yield is 2.92%.

Step-by-step explanation:

The earnings per share (EPS) can be calculated by dividing the net profit after taxes by the number of shares outstanding. In this case, the company's net profit after taxes is 15.8 million and it has 2.5 million shares of common stock outstanding. Therefore, the EPS is 15.8 million / 2.5 million = $6.32 per share. The price-to-earnings ratio (P/E ratio) is calculated by dividing the stock price by the EPS. Given that the stock is currently trading at $60 per share and the EPS is $6.32, the P/E ratio is 60 / 6.32 = 9.49. The dividend yield can be calculated by dividing the dividend per share by the stock price. If the company pays a dividend of $1.75 per share and the stock is trading at $60 per share, the dividend yield is 1.75 / 60 = 0.0292 or 2.92%.