# The following information applies to Benson Company for 2014: Stock market price, December 31,...

## Question:

The following information applies to Benson Company for 2014:

 Stock market price, December 31, 2014 $50 Common shares outstanding, December 31, 2014 100,000 Net Income for year 2014$400,000 Retained Earnings January 1, 2014 $100,000 On December 31, 2014, Benson decides to pay the maximum amount it can in dividends to its shareholders. What is the dividend yield ratio? ## Dividend Yield Ratio: The dividend yield ratio is one of the several profitability financial ratios used by the existing and the prospective shareholders for analyzing the performance of a firm and its peers in a given industry. The other ratios which may also be used are net profit margin, earnings per share etc. ## Answer and Explanation: The calculated value of the dividend yield ratio is 8%. The maximum amount of the dividend which can be paid per share is given by: • = Net income for the year 2014 / common shares outstanding on December 31, 2014 • {eq}= \dfrac{\$400,000}{100,000} {/eq}
• = $4 per share The dividend yield ratio is given by: • = Dividend amount per share / stock market price per share • {eq}= \dfrac{\$4}{\\$50} {/eq}
• = 8% 