Question

During Year 3, Blue Ridge Corporation reported after-tax net income of $4,150,000. During the year, the number of shares of stock outstanding remained constant at 15,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The company's total stockholders' equity is $20,000,000 at December 31, Year 3. Blue Ridge Corporation's common stock was selling at $80 per share at the end of its fiscal year. All dividends for the year have been paid, including $4.80 per share to common stockholders. Required a. Compute the earnings per share. Note: Round your answer to 2 decimal places. b. Compute the book value per share of common stock. Note: Round your answer to 2 decimal places. c. Compute the price-earnings ratio. Note: Round intermediate calculations and final answer to 2 decimal places. d. Compute the dividend yield. Note: Round your answer to 2 decimal places. (i.e., 0.2345 should be entered as 23.45 ).

Answer 1

To compute the earnings per share (EPS), divide the after-tax net income by the weighted average number of shares. The book value per share of common stock can be calculated by dividing the total stockholders' equity by the number of common shares. The price-earnings ratio (P/E ratio) can be determined by dividing the market price per share by the earnings per share. The dividend yield is calculated by dividing the annual dividend per share by the market price per share.

Step-by-step explanation:

To compute the earnings per share (EPS), you need to divide the after-tax net income by the weighted average number of shares. For Blue Ridge Corporation, the EPS is $4,150,000 divided by 400,000, which equals $10.38 per share.

The book value per share of common stock can be calculated by dividing the total stockholders' equity by the number of common shares. In this case, the book value per share is $20,000,000 divided by 400,000, which equals $50 per share.

The price-earnings ratio (P/E ratio) can be determined by dividing the market price per share by the earnings per share. For Blue Ridge Corporation, the P/E ratio is $80 divided by $10.38, which equals approximately 7.70.

The dividend yield can be calculated by dividing the annual dividend per share by the market price per share. In this case, the dividend yield is $4.80 divided by $80, which equals 0.06 or 6%.

Answer 2

Calculations for Blue Ridge Corporation's financial metrics show an EPS of $10.04, a book value per share of $46.25, a P/E ratio of 7.97, and a dividend yield of 6%.

Step-by-step explanation:

To calculate various financial metrics for Blue Ridge Corporation, we will need to perform a series of calculations using the company's given financial data.

a. Earnings Per Share (EPS)

The formula for EPS is Net Income divided by the number of common shares outstanding. Since preferred dividends need to be subtracted as part of the calculation, first calculate the dividends for the preferred stock: 15,000 shares × $100 par × 9% = $135,000. Subtract this from the after-tax net income to obtain the income available to common shareholders: $4,150,000 - $135,000 = $4,015,000. Then, divide by the number of common shares outstanding: $4,015,000 / 400,000 shares = $10.04 EPS.

b. Book Value Per Share

The book value per share of common stock is computed by dividing the total stockholders' equity minus preferred stock equity by the number of common shares outstanding. Preferred stock equity is the par value of preferred shares: 15,000 × $100 = $1,500,000. Subtract this from total stockholders' equity to find common stockholders' equity: $20,000,000 - $1,500,000 = $18,500,000. Divide by the number of common shares: $18,500,000 / 400,000 shares = $46.25 book value per share.

c. Price-Earnings Ratio (P/E Ratio)

The price-earnings ratio is calculated by dividing the market price per share by the EPS: $80 per share / $10.04 EPS = 7.97 P/E Ratio.

d. Dividend Yield

Dividend yield is determined by dividing the annual dividend per share by the market price per share: $4.80 per share / $80 per share = 0.06, or 6% dividend yield.