ACCT 1A Lecture Notes - Lecture 22: Market Price, Issued Shares, Dividend Yield

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rosebuffalo981

18 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

seilo

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Document Summary

The stock exchanges set an ex-dividend date, which is normally two business days before the date of record, to make certain that dividend cheques are sent to the right shareholders. If you buy shares before the ex-dividend date, you receive the dividend. If you buy the shares on the ex-dividend date or later, the previous shareholder. A company"s share price falls on the ex-dividend date because the share is worth receives the dividend less because it no longer includes the right to receive the next dividend. Analytical question -> investors in common shares expect to earn a return on their investment. A portion of this return comes in the form of dividends. How much do investors earn on their investment based on dividends? earn from the dividends they receive. The dividend yield ratio is a measure of the percentage return that shareholders. Dividend yield ratio = (dividends per share) / (market price per share)

Related Questions

As of June 2004, Microsoftâs quarterly dividend was four measlycents per share. With $50 billion of cash on hand, on July 20th ofthat year, the company announced a one-time âspecial dividendâ of$32 billion, or $3 per share. Should the Microsoft investors havebeen happy that they were to be receiving gobs of cash in the formof this special dividend? Seems like a funny question. Is winningthe lottery a good thing? Am I better off getting a bonus, or not?Unlike these windfalls, shareholders receiving dividends are simplygetting what is already theirs. Before receiving the dividendcheck, they already owned that cash, because they own everything ofthe company's. "Wait!" you say. "Didn't we discuss that receiving adollar today is more valuable than receiving it in the future?"Indeed, it is, but... that's if you are comparing having a dollartoday, which you could invest and earn some rate of return on,versus receiving just one dollar in the future. That's not whatwe're talking about in the dividend decision. If you, theshareholder, get the dividend now, you'll invest it in something orother, and earn some investment return. Conversely, if you do notget the dividend now, this company will retain the funds and investthem in the company's activities, and (presumably) earn someinvestment return. How do you feel now about the Microsoftdividend?

limeimpala784

QUESTION 1

Probably the most basic right of a stockholder is the rightto:

	A.	receive an assured dividend each year.
	B.	serve as a director of the organization.
	C.	vote at stockholders' meetings.
	D.	receive at least his or her initial investment uponliquidation

The three significant cash dividend dates are the date ofdeclaration, date of record, and date of payment.

True

False

QUESTION 3

The price-earnings ratio is computed by dividing the currentmarket price per share of common stock by earnings per share.

True

False

The three significant cash dividend dates are (in order) thedates of:

	A.	declaration, distribution, and payment.
	B.	record, distribution, and payment.
	C.	declaration, record, and distribution.
	D.	declaration, record, and payment

The date of record follows the date of the declaration of adividend.

True

False

The amount of prior unpaid dividends is only important if thepreferred stock is:

	A.	noncumulative and convertible.
	B.	noncumulative and callable.
	C.	noncumulative.
	D.	cumulative

The number of outstanding shares of stock is the:

	A.	number authorized but not yet issued.
	B.	number issued to the original incorporates.
	C.	number issued and currently held by stockholders.
	D.	total number issued.

Treasury stock is stock that:

	A.	is apportioned to cover special projects such as theconstruction of a new building.
	B.	has never been issued.
	C.	has been issued but was reacquired by the corporation.
	D.	must be offered to existing stockholders first in amountsproportional to their shareholdings of the issuer's stock.

Modern Building Supply sells various building materials toretail outlets. The company has just approached Linden State Bankrequesting a $300,000 loan to strengthen the Cash account and topay certain pressing short-term obligations. The company'sfinancial statements for the most recent two years follow:

Modern Building Supply: Balance sheet
	This Year	Last year
Assets
Current assets:
Cash	$63,000	$135,000
Market securities	0	19,000
Accounts receivable, net	471,000	289,000
Inventory	935,000	597,000
Prepaid expenses	17,000	24,000
Total current assets	1,486,000	1,064,000
Plant and equipment, net	1,539,810	1,445,550
Total assets	$3,025,810	$2,509,550
Liabilities and Stockholders' Equity
Liabitities:
Current liabilities	$812,000	$438,000
Bonds payable, 10%	617,000	617,000
Total liabilities	1,429,000	1,055,000
Stockholders' equity:
Pereferred stock, $25 par, 7%	255,000	255,000
Common stock, $10 par	507,000	507,000
Retained earnings	834,810	692,550
Total stockholders' equity	1,596,810	1,454,550
Total liabilities and stockholders equity	$3,025,810	$2,509,550

Comparative income statemet annd reconciliation
	This year	Last year
Sales	$5,007,000	$4,356,000
Cost of goods sold	3,866,000	3,443,000
Gross margin	1,414,000	913,000
Selling and administrative expenses	635,000	539,000
Net operating income	506,000	374,000
Interest expense	61,700	61,700
Net income before taxes	44,300	312,300
Income taxes (40%)	177,720	124,920
Net income	266,580	187,380
Dividends paid:
Preferred dividends	17,850	17,850
Common dividends	106,470	70,980
Total dividends paid	124,320	88,830
Net income retained	142,260	98,550
Retained earnings, beginning of year	692,550	594,000
Retained earnings, end of year	$834,810	$692,550

During the past year, the company has expanded the number oflines that it carries in order tostimulate sales and increaseprofits. It also moved aggressively to acquire new customers. Salesterms are 2/10, n/30. All sales are on account.

Assumer that the following ratios are typical of companines inthe building supply industry:

Current ratio	2.5
Acid-test ratio	1.2
Average collection period	18 days
Average sale period	50 days
Debt-to-equity ratio	0.75
Times interest earned ratio	6.0
Return on total assets	10%
Price-earnings ratio	9

Assume that you have just inherited several hundred shares ofModern Building Supplu stock. Not being acquainted with thecompany, you decide to do some analytical work beofer making adecision about whether to retain or sell the stock you haveinherited.

Required:

1. You decide first to assess the well-being ofthe common stockholders.For both this year and last year, computethe following:

a. The earnings per share (Round your answer to2 decimal places.)

	This year	Last year
Earnings per share	$ ?	$ ?

b. The dividend yield ratio for common stock.The company's common stock is currently selling for $33.39 pershare; last year it sold for $25.72 per share (Round youintermediate calculations to 2 decimal palces and final answers to1 decimal place.)

	This year	Last year
Dividend yield ratio	? %	? %

c. The dividend payout ratio for common stock(Round you intermediate calculations to 2 decimal places and finalanswers to 1 decimal place.)

	This year	Last year
Dividend payout raito	? %	? %

d. The price-earnings ratio (Round yourintermediate calculations to 2 decimal places and final answers to1 decimal place.)

	This year	Last year
Price-earnings ratio	? times	? times

e. The book value per share of common stock(Round your ansers to 2 decimal places.)

	This year	Last year
Book value per share	$ ?	$ ?

2. You decide next to assess the compay's rateof return. Compute the following for bothe this year and lastyear:

a. The return on total assets (Total assets atthe beginning of last year were $2,270,000) (Round yourintermediate to whole numbers and final answer to 1 decimalplace)

	This year	Last year
Return on total assets	? %	?%

b.The return on common stockholders' equity.(Stockholders' equity at the beginning of last year was $1,319,000)(Round you intermediate calculations to whole numbers and finalanswer to 1 decimal place.)

	This year	Last year
Return on common stockholders' equity	?%	?%

jadefrog109

ACCT 1A Lecture Notes - Lecture 22: Market Price, Issued Shares, Dividend Yield

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