From the following data, determine for the current year the (a) rate earned on t
ID: 2425534 • Letter: F
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 230,000 160,000
Net income for year 110,00 155,000
Preferred dividends declared (25,000) (25,000)
Common dividends declared (70,000) (60,000)
Explanation / Answer
(a) rate earned on total assets= EBIT / Net assets *100
= 110000/ 2237500 *100
= 4.92%
where net asset = (2255000+ 2220000 )/2 = 2237500
(b) rate earned on stockholders' equity= Net income/ stock holder's equity*100
= 110000/1450000*100
=7.59%
where shareholder's equity = 1450000
(c) rate earned on common stockholders' equity = 110000/1200000*100
= 9.17%
(d) earnings per share on common stock = earnings available for equity share holders / number of equity outstanding
= 110000/48000
= 2.92
(e) price-earnings ratio on common stock = market price per share/ earnings per share
= 25/2.92
= 10.91
(f) dividend yield on common stock = dividend/earnings per share *100
= 1.4583 / 2.92
=0.499
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