# Finances - EPS, Dividend Yield, Payout Ratio

1. Assume the following financial data:

Short-term assets . . . . . . . . . . . . . . . . . . . . . $200,000

Long-term assets . . . . . . . . . . . . . . . . . . . . . . 350,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . $550,000

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . $100,000

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 50,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . 150,000

Common stock . . . . . . . . . . . . . . . . . . . . . . . 150,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . 250,000

Total liabilities and stockholders' equity . . . . $550,000

Total earnings (after-tax) . . . . . . . . . . . . . . . . $ 48,000

Dividends per share . . . . . . . . . . . . . . . . . . . . $ 1.10

Stock price . . . . . . . . . . . . . . . . . . . . . . . . $ 54

Shares outstanding . . . . . . . . . . . . . . . . . . . . . 16,000

a. Compute the P/E ratio (stock price to earnings per share).

b. Compute the ratio of stock price to book value per share (note that

book value equals stockholders' equity).

c. Compute the dividend yield.

d. Compute the payout ratio.

2. A two-year investment of $2,000 results in a return of $150 at the end of the first year

and a return of $150 at the end of the second year, in addition to the return of the

original investment. The internal rate of return on the investment is:

a. 6.4%

b. 7.5%

c. 15.0%

d. None of the above

3. Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and

the underlying common stock are given in the following exhibit:

Convertible Bond Characteristics

Par value $1,000

Annual coupon rate (annual pay) 6.5%

Conversion ratio 22

Market price 105% of par value

Straight value 99% of par value

Underlying Stock Characteristics

Current market price $40 per share

Annual cash dividend $1.20 per share

Compute the bond's:

a. Conversion value.

b. Market conversion price.

#### Solution Preview

1.

a. Compute the P/E ratio (stock price to earnings per share).

Stcok Price = $54

EPS = Earnings after tax / shares outstanding = 48000/16000 = 3.00

P/E=54/3.00=18.00

b. Compute the ratio of stock price to book value per share (note that

book value equals stockholders' equity).

Stockholder's equity = common stock + retained earnings = 150000+250000=400000

Book ...

#### Solution Summary

The solution calculates EPS, dividend yield and payout ratio.