CMA Study Group

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  • 1.  Ratios-pls explain

    Posted 11-30-2020 06:26 AM
    At the end of the current year, a firm had a dividend yield of 3% and a price-to-earnings ratio of 20X. If fully diluted earnings per share is $.72, what is the dividend paid on each share of common stock?
    A. $.02
    B. $.43
    C. $.04
    D. $.60<gdiv></gdiv>

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    Syed Yousuf Jamal
    None
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  • 2.  RE: Ratios-pls explain

    Posted 11-30-2020 08:45 AM
    You need to know two formulas to solve this problem.  In [ ] after the formula is the information provided in the problem:

    (1) Dividend Yield = Dividend / Stock Price: [3% = Dividend / Stock Price]
    (2) P/E Ratio = Stock Price / Earnings per Share: [20 = Stock Price / $.72]

    There's enough information to solve for the stock price using the P/E Ratio, which is 20 * $.72 = $14.4.  Now that you know the stock price, you can insert that into the Dividend Yield formula and solve for the dividend, which is 3% * $14.4 = $.43.  So, the correct answer is B.

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    Michael Ramsey
    Director/Manager
    Omaha NE
    United States
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  • 3.  RE: Ratios-pls explain

    Posted 12-01-2020 02:38 AM
    The Answer should be A), ref. attached image


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    Kanav Khanna
    Gurgaon, India
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  • 4.  RE: Ratios-pls explain

    Posted 12-01-2020 09:11 AM
    Kanav, you've used the dividend payout ratio formula instead of the dividend yield formula.  The problem calls for use of dividend yield.

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    Michael Ramsey
    Director/Manager
    Omaha NE
    United States
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  • 5.  RE: Ratios-pls explain

    Posted 12-01-2020 12:51 PM
    Exactly. It should be Dividend Yield. You answer is correct.

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    Ashvin Kulkarni
    Accountant
    Pune
    India
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