Question

4. Meadville Co. had additions to retained earnings for the year just ended of $150,000. The firm paid out $100,000 in cash dividends, and it has ending total equity of $5 million. If Meadville currently has 100,000 shares of common stock outstanding, what are earnings per share? Dividends per share? Book value per share? If the stock currently sells for $70 per share, what is the market-to-book ratio? The price-earnings ratio?

Answer 1

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Answer 2

To calculate the earnings per share (EPS), dividends per share, and book value per share, we need to use the given information.

1. Earnings per Share (EPS): Earnings per share is calculated by dividing the additions to retained earnings by the number of shares outstanding. In this case, the additions to retained earnings are $150,000, and the number of shares outstanding is 100,000.

EPS = Additions to Retained Earnings / Number of Shares Outstanding EPS = $150,000 / 100,000 EPS = $1.50 per share

Therefore, the earnings per share (EPS) is $1.50.

2. Dividends per Share: Dividends per share is calculated by dividing the cash dividends paid out by the number of shares outstanding. In this case, the cash dividends paid out are $100,000, and the number of shares outstanding is 100,000.

Dividends per Share = Cash Dividends Paid / Number of Shares Outstanding Dividends per Share = $100,000 / 100,000 Dividends per Share = $1.00 per share

Therefore, the dividends per share is $1.00.

3. Book Value per Share: Book value per share is calculated by dividing the ending total equity by the number of shares outstanding. In this case, the ending total equity is $5 million, and the number of shares outstanding is 100,000.

Book Value per Share = Ending Total Equity / Number of Shares Outstanding Book Value per Share = $5,000,000 / 100,000 Book Value per Share = $50 per share

Therefore, the book value per share is $50.

4. Market-to-Book Ratio: The market-to-book ratio is calculated by dividing the market price per share by the book value per share. In this case, the market price per share is $70, and the book value per share is $50.

Market-to-Book Ratio = Market Price per Share / Book Value per Share Market-to-Book Ratio = $70 / $50 Market-to-Book Ratio = 1.4

Therefore, the market-to-book ratio is 1.4.

5. Price-Earnings Ratio: The price-earnings ratio is calculated by dividing the market price per share by the earnings per share. In this case, the market price per share is $70, and the earnings per share is $1.50.

Price-Earnings Ratio = Market Price per Share / Earnings per Share Price-Earnings Ratio = $70 / $1.50 Price-Earnings Ratio ≈ 46.67

Therefore, the price-earnings ratio is approximately 46.67.