From the following data, determine for the current year the (a) rate earned on t

Question

From the following data, determine for the current year the (a) rate earned on total assets, (b) rate earned on stockholders' equity, (c) rate earned on common stockholders' equity, (d) earnings per share on common stock, (e) price-earnings ratio on common stock, and (f) dividend yield on common stock. Assume that the current market price per share of common stock is $25. (Present key figures used in your computations.)


Current Year Preceding Year
Current assets $ 745,000 $ 820,000
Property, plant, and equipment 1,510,000 1,400,000
Current liabilities
(non-interest-bearing) 160,000 140,000
Long-term liabilities, 12% 400,000 400,000
Preferred 10% stock 250,000 250,000
Common stock, $25 par 1,200,000 1,200,000
Retained earnings:
Beginning of year 240,000 160,000
Net income for year 95,000 155,000
Preferred dividends declared (25,000) (25,000)
Common dividends declared (70,000) (60,000)

Explanation / Answer

A) Formula is good but answer is fomrated wrong. 11.565% B) Rate earned on stockholder's equity = Net Income / Total Stockholder's Equit 85,000 / (250,000 + 1,200,000 + 230,000)= 5.06% C) Looks good D) Earnings per share = Net Income - Perferred Dividends / Common Shares OUtstanind (85,000 - 25,000) / (1,200,000 / 25) = $1.25 E) Price-Earnings Ratio = Market Price / EPS $27 / $1.25 = $21.6 F) Shares of stock = 1,200,000 / 25 par = 48000 Dividends per share = 60,000 / 48,000 = 1.25 Dividend yield = 1.25 / 27 = 4.63%

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