Question

The firm has just declared a dividend of $1.09 per share for the current fiscal year. The firm has earnings per share of $2.11, and 225,000 shares outstanding with a market price of $31.17 per share prior to the ex-dividend day. Ignore taxes. As a result of this dividend, the: A) the current dividend yield is 51.66% B) retained earnings will increase by $245,250. C) the current dividend payout ratio is 3.497% D) earnings per share will increase to $3.20. E) price-earnings ratio will be 14.26 ex-dividend.

Answer 1

Answer: E) price-earnings ratio will be 14.26 ex-dividend.

Step-by-step explanation:

Stock prices generally decrease in price by the price of the dividend on ex-dividend date.

This means that this stock will reduce to:

= 31.17 - 1.09

= $30.08

Price to Earnings ratio = Stock price/ Earnings per share

= 30.08/2.11

= $14.26

Option E is correct.