Problem 2-7: The Continuity Corporation The following information was available

Question

Problem 2-7: The Continuity Corporation The following information was available for the Continuity Corporation on April 31, 2018 63 Earnings Per Share Dividend Yield (%) Common Shares outstanding 300 Price Earnings Ratio 4 Required 1. Compute Net Income. 2. Compute the Market Value of the Firm 3. Compute Dividends per Share. 4. Compute the total amount of dividends. 5. Compute the Dividend Payout Ratio (rounded to 2 decimal places) Upon completion, enter your answers below: Net Income: Market Value of Firm: Dividends per Share (round to 2 decimal places): Total Amount of Dividends: Dividend Payout Ratio % (2 decimal places):

Explanation / Answer

1. EARNING PER SHARE = 63

FORMULA FOR EARNING PER SHARE= NET INCOME/NO OF SHARES OUTSTANDING

NET INCOME= EARNING PER SHARE*NO OF SHARES OUTSTANDING

NET INCOME =63*300=18900

2.MARKET VALUE OF THE FIRM = NO OF SHARES OUTSTANDING* MARKET VALUE OF SHARES

AS WE HAVE PRICE EARLING RATION WE CAN CALCULATE MARKET VALUE OF SHARES

PRICE EARNING RATIO =MARKET [RICE PER SHARE/EARNING PER SHARE

MARKET PRICE PER SHARE=PRICE EARNING RATION*EARNINGS PER CHARE

MARKET PRICE PER SHARE=4*63=252

MARKET VALUE OF THE FIRM= 300 *252=75600

3. AS WE KNOW DIVIDEND YIELD RATIO=DIVIDEND PER SHARE/PRICE PER SHARE

DIVIDEND PER SHARE= DIVIDEND YIELD RATIO*PRICE PER SHARE

DIVIDEND PER SHARE=.09*252=22.68

4. TOTAL AMOUNT OF DIVIDEND= DIVIDEND PER SHARE * NO OF SHARES OUTSTANDING

TOTAL AMOUNT OF DIVIDEND= 22.68*300=6804

5. DIVIDEND PAYOUT RATIO=TOTAL DIVIDEND PAID/NET INCOME FOR THE PERIOD

DIVIDEND PAYOUT RATIO=6804/18900=.36=36%

DIVIDEND PAYOUT RATIO=36%

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