2018 2017 Income Statement-partial: $ 18,900 $ 24,000 Net Income Dec. 31, 2018 Dec. 31, 2017 Balance Sheet-partial: $ 285,000 $ 200,000 Total Assets Paid-In Capital: $ 90,000 Preferred Stock-11%, $9 Par Value; 60,000 shares authorized, 10,000 shares issued and outstanding Common Stock-$1 Par Value; 45,000 shares authorized, 30,000 shares issued and outstanding $ 90,000 30,000 30,000 Paid-In Capital in Excess of Par-Common 14,000 14,000 Retained Earnings 51,000 42,000 Total Stockholders' Equity $ 185,000 $ 176,000
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Computing earnings per share, price/earnings ratio, and
Gullo Company reported these figures for 2018 and 2017:
Requirements
- Compute Gullo Company’s earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.
- Compute Gullo Company’s price/earnings ratio for 2018. Assume the company’s market price per share of common stock is $9. Round to two decimals.
- Compute Gullo Company’s rate of return on common stockholders’ equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.
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