Mihok Corporation has provided the following financial data: Year 2Year 1Stockholders' equity: Common stock, $3 par value$300,000 $300,000 Additional paid-in capital 100,000 100,000 Retained earnings 375,000 370,000 Total stockholders' equity$775,000 $770,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,380,000 Cost of goods sold 780,000 Gross margin 600,000 Operating expenses 567,714 Net operating income 32,286 Interest expense 18,000 Net income before taxes 14,286 Income taxes (30%) 4,286 Net income$10,000 Dividends on common stock during Year 2 totaled $5,000. The market price of common stock at the end of Year 2 was $0.97 per share.Required:a. What is the company's earnings per share for Year 2?b. What is the
company's price-earnings ratio for Year 2?c. What is thecompany's dividend payout ratio for Year 2?d. What is the company's dividend yield ratio for Year 2?e. What is the company's book value per share at the end of Year 2?
What will be an ideal response?
a.
Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $10,000 ÷ 100,000 shares = $0.10 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $300,000 ÷ $3 per share = 100,000 shares
b.
Price-earnings ratio = Market price per share ÷ Earnings per share
= $0.97 ÷ $0.10 = 9.70 (rounded)
c.
Dividend payout ratio = Dividends per share* ÷ Earnings per share
= $0.05 ÷ $0.10 = 50.0% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $5,000 ÷ 100,000 shares = $0.05 per share (rounded)
d.
Dividend yield ratio = Dividends per share* ÷ Market price per share
= $0.05 ÷ $0.97 = 5.15% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $5,000 ÷ 100,000 shares = $0.05 per share (rounded)
e.
Book value per share = Common stockholders' equity ÷ Number of common shares outstanding*
= $775,000 ÷ 100,000 shares = $7.75 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $300,000 ÷ $3 per share = 100,000 shares
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