The balance sheet for Fisher Company at the end of the current fiscal year indic
ID: 2361127 • Letter: T
Question
The balance sheet for Fisher Company at the end of the current fiscal year indicated the following:
Bonds payable, 10% (issued in 2000, due in 2020)
$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 was selling for $70 per share at the end of the year.
Required:
Determine each of the following:
(1)
Number of times bond interest charges are earned;
(2)
Number of times preferred dividends are earned;
(3)
Earnings per share on common stock;
(4)
Price-earnings ratio;
(5)
Dividends per share of common stock; and
(6)
Dividend yield.
Round to one decimal place except earnings per share, which should be rounded to two decimal places.
Bonds payable, 10% (issued in 2000, due in 2020)
$5,000,000
Preferred 10% stock, $100 par
1,000,000
Common stock, $10 par
2,000,000
Explanation / Answer
1. Times interest earned = EBIT/interest charges = (1,500,000 + 500,000)/500,000 = 4.0 times
2. Number of times preferred dividends are earned = Net Income Available to Preferred Stockholders / Annual Preferred Dividends Requirements = 1,300,000/100,000 = 13.0 times
(preferred dividends = 10% of 1,000,000)
3. EPS on common stock = (Net income – preferred dividends)/weighted-average common shares outstanding = (1,300,000 – 100,000)/200,000 = $1.50
4. Price-earnings ratio = market value per share/earnings per share = $70/$1.50 = 46.7
5. Dividends per share of common stock = Cash dividends paid on common stock/shares of common stock = 150,000/200,000 = $0.75
6. Dividend yield = Annual Cash dividends per share/market value per share = 0.75/70 = 0.0107 or 1.1%
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