Question

The balance sheet for Seuss Company at the end of the current fiscal year indicated the following: Bonds payable, 10% (20-year term) $5,000,000 Preferred 10% stock, $100 par 1,000,000 Common stock, $10 par 2,000,000 Income before income tax was $1,500,000 and income taxes were $200,000 for the current year. Cash dividends paid on common stock during the current year totaled $150,000. The common stock sells for $75 per share at the end of the year. Required: Determine each of the following: Round ratios and percentages to one decimal place, and monetary amounts to the nearest cent. 1. Times interest earned times 2. Earnings per share on common stock $ 3. Price-earnings ratio 4. Dividends per share of common stock $ 5. Dividend yield %

Answer 1

TIE 4

Common Stock Earning per Share = 6

Dividends per share = 0.75

Dividends yield 1%

Step-by-step explanation:

Interest expense:

5,000,000 bonds value x 10% rate = 500,000 interest expense

Earnings before interest and taxes:

IBT + interest expense = 1,500,000 + 500,000 = 2,000,000

TIE: interest before interest / interest expense

2,000,000 / 500,000 = 4

preferred stock dividends:

1,000,000 x 10% = 100,000

net income - preferred divideds:

1,300,000 - 100,000 = 1,200,000 earnigns for comon stock:

common stock outstanding:

2,000,000 / $10 each = 200,000

Earning per share: 1,200,000 / 200,000 = 6.00

Dividends per share: 150,000 / 200,000 = 0.75

Dividend yield: dividend per share / price of ommon stock

0.75 / 75 = 0.01

Answer 2

Step-by-step explanation:

1) Interest expense = 5000000 × 10% = 500000

Times interest earned = Income before interest and tax / Interest expense = (1500000+500000) / 500000 = 4 Times

2) Earning per share of Common Stock = (Income after tax-Income tax-preferred dividend) / Share outstanding = (1500000-200000-100000 ) / 200000 = 6 per share

3) Price earning ratio = 75 / 6 = 12.50 times

4) Dividend per share of Common Stock = 150000 / 200000 = 0.75 per share

5) Dividend yield = 0.75 / 75 = 1%