The balance sheet for Borglum Company at the end of the current fiscal year indi

Question

The balance sheet for Borglum 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 interest charges are earned;
(2) Earnings per share on common stock;
(3) Price-earnings ratio;
(4) Dividends per share of common stock; and
(5) Dividend yield.


Round to one decimal place except earnings per share, which should be rounded to two decimal places.

Explanation / Answer

. 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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