Question

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) $5,250,000 Preferred $4 stock, $200 par (no change during the year) 6,000,000 The net income was $750,000 and the declared dividends on the common stock were $52,500 for the current year. The market price of the common stock is $24.00 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

Answer 1

(a) the earnings per share = $3

(b) the price-earnings ratio = 8x

(c) the dividends per share = $0.25

(d) the dividend yield = 1.04%

Step-by-step explanation:

Common Stock Outstanding = 5,250,000/25 = 210,000 shares

Preferred Stock Outstanding = 6,000,000/200 = 30,000 shares

Preferred Stock Dividend per share = $4

(a) Earnings Per Share

EPS = Net Income - Preferred Dividend

Common Stock Outstanding

EPS = 750,000 - (30,000 * 4)

210,000

EPS = 630,000

210,000

EPS = $3

(b) Price-Earnings Ratio

Market Price = $24

EPS = $3

P/E ratio = Market Price

EPS

P/E ratio = 24/3

P/E ratio = 8x

(c) Dividends Per Share

DPS = Total Dividends

Common Stock Outstanding

DPS = 52,500/210,000

DPS = $0.25

(d) Dividend Yield

DY = Dividend Per Share

Price

DY = 0.25/24

DY = 1.04%