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Chapter 14 problems

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1. Calculating Dividend Amounts. Betty and John Martinez own 220 shares of ExxonMobil common stock. ExxonMobil’s quarterly dividend is $1.76 per share. What is the amount of the dividend check that the Martinez couple will receive for this quarter?

Answer: Quarterly dividend = 220 shares $1.76 = $387.20

2. Determining the Number of Shares after a Stock Split. In March, stockholders of Dress Barn Corporation approved a two for one stock split. After the split, how many shares of Dress Barn stock will an investor have if she or he owned 210 shares before the split?

Answer: 210 shares before the split (2/1) = 420 shares after the split.

3. Calculating Total Return. Tammy Jackson purchased 100 shares of All-American Manufacturing Company stock at $31.50 a share. One year later, she sold the stock for $38 a share. She paid her broker a $28 commission when she purchased the stock and a $42 commission when she sold it. During the 12 months that she owned the stock, she received $160 in dividends. Calculate Ms. Jackson’s total return on this investment.

Answer: Current Return = $160 in dividends over the past 12 months

Purchase Price = $31.50 100 shares + $28 commission = $3,178

Selling Price = $38 100 shares - $42 commission = $3,758

Capital gain = $3,758 - $3,178 = $580

Total Return = $160 Current Return + $580 capital gain or $740.

4. Determining a Preferred Dividend Amount. James Hayes owns 510 shares of Ohio Utility preferred stock. If this preferred stock issue pays $3.50 per share, what is the total amount of the dividends Mr. Hayes will receive in one year?

Answer: $3.50 per share 510 shares = $1785 Total dividends

5. Calculating the Dividend Amount for a Cumulative Preferred Stock Issue. Wyoming Sports Equipment issued a $2 cumulative preferred stock issue. In 2009, the firm’s board of directors voted to omit dividends for both the company’s common stock and preferred stock issues. Also, assume that the corporation’s board of directors votes to pay dividends in 2010.

a. How much did the preferred stockholders receive in 2009?

Answer: Because of the board’s action, preferred stockholders received $0 in 2009.
b. How much did the common stockholders receive in 2009?

Answer: Because of the board’s action, common stockholders received $0 in 2009.

c. How much did the preferred stockholders receive in 2010?

Answer: Cumulative preferred stockholders received $4 in 2010, as illustrated below:

$2 (2009 omitted dividend) + $2 (2010) = $4 total dividend

6. Calculating Dividend Payout. Assume you own shares in Honeywell, Inc. and that the company currently earns $2.80 per share and pays quarterly dividend payments that total $1.10 a share each year. Calculate the dividend payout for Honeywell?

Answer: The dividend payout is 39.3%.

Dividend payout = Dividend amount

Earnings per share

= $1.10


= 0.393 = 39.3%

7. Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.

a. Calculate the earnings per share of Bozo Oil’s common stock.

Answer: After Tax Income / Number of Shares Outstanding = EPS

b. Assuming that a share of Bozo Oil’s common stock has a market value of $40, what is the firm’s price-earnings ratio?

Answer: Price per share / Earnings per share = P/E Ratio

c. Calculate the book value of a share of Bozo Oil’s common stock.

Answer: (Assets – Liabilities) / Number of shares outstanding = Book value

8. Calculating Beta. Thompson Home Remodeling has a 1.20 beta. If the overall stock market increases by 7 percent, how much will Thompson Home Remodeling change?

Answer: Volatility for a stock = Increase in overall market x Beta for a specific stock

7 percent x 1.20 = 0.084 = 8.40 percent increase for Thompson Home Remodeling

9. Calculating Ratios. According to the financial statements for Samson Electronics, Inc., the firm has total assets valued at $220 million. It also has total liabilities of $140 million. Company records indicate that the firm has issued 2 million shares of stock.

a. Based on the above information, calculate the book value for a share of Samson Electronics.

Answer: The book value for a share of Samson Electronics is $40, as calculated below.

$220 million - $140 million ÷ 2 million shares = $40.

b. If a share of Samson Electronics, Inc. currently has a market value of $50 a share, what is the market-to-book ratio?

Answer: $50 market value ÷ $40 book value = 1.25

10. Using Dollar Cost Averaging. For four years, Mary Nations invested $4,000 each year in America Bank stock. The stock was selling for $34 in 2007, for $48 in 2008, for $37 in 2009, and $52 in 2010.

a. What is Ms. Nations’s total investment in America Bank?

Answer: Ms. Nations’s total investment is $16,000, as illustrated below.

$4,000 x 4 years = $16,000 total investment.

b. After four years, how many shares does Ms. Nations own?

Answer: Ms. Nations owns 385.9 shares, as illustrated below.


$4,000 ÷ $34 =



$4,000  $48 =



$4,000  $37 =



$4,000  $52 =


Total Shares


c. What is the average cost per share of Ms. Nations’s investment?

Answer: The average cost per share is $41.46, as illustrated below.

$16,000 total investment  385.9 shares = $41.46 per share cost.

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