Copyright

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%

Learn more about this topic:

Loading...
What Is Dividend Yield? - Definition & Calculation

from Corporate Finance: Help & Review

Chapter 2 / Lesson 10
3.9K

Related to this Question

Explore our homework questions and answers library