Common stock, $20 par (no change during the year) $10,000,000
Preferred $4 stock, $40 par (no change during the year) 2,500,000
The net income was $1,750,000 and the declared dividends on the common stock were $1,125,000 for the current year. The market price of the common stock is $45 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. Round to one decimal place, except earnings per share, which should be rounded to two decimal places.
Answer:
a. Earnings per Share = Net Income – Preferred Dividends
Shares of Common Stock Outstanding
$1,750,000 – $250,000*
500,000** shares
* ($2,500,000 ÷ $40) × $4
** $10,000,000 ÷ $20
= $3.00
b.
Price-Earnings Ratio = Market Price per Share of Common Stock
Earnings per Share of Common Stock
$45.00 = $3.00
c. Dividends per Share =
15.0
Common Dividends
Shares of Common Stock Outstanding
$1,125,000
500,000 shares = $2.25
d. Dividend Yield = Dividends per Share of Common Stock
Market Price per Share of Common Stock
$2.25
$45.00 = 5.0%