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Chapter 5: Q4BP (page 596)

Polycom Systems earned \(553 million last year and paid out 25 percent of earnings in dividends.

a. By how much did the company’s retained earnings increase?

b. With 100 million shares outstanding and a stock price of \)101, what was the dividend yield? (Hint: First compute dividends per share.)

Short Answer

Expert verified

The retained earnings are $414,750,000.The dividend yield is 1.37%.

Step by step solution

01

Information provided in the question

Earnings = $553,000,000

Pay-out ratio = 25%

Shares outstanding = 100,000,000

Stock price = $101

02

Calculation of retained earnings

The retained earnings are $414,750,000.

Dividend=Earnings×Pay - out ratio=$553,000,000×25%=$138,250,000

Retained earnings=Earnings-Dividend=$553,000,000-$138,250,000=$414,750,000

03

Calculation of dividend yield

The dividend yield is 1.37%.

Dividend per share=DividendShares outstanding=$138,250,000100,000,000=$1.38

Dividend yield=Dividend per shareStock price=$1.38$101=1.37%

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Most popular questions from this chapter

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:

In \( millions

In \) millions

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Current liabilities

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Fixed assets

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Total liabilities

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The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.

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Question: The Bowman Corporation has a \(18 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.5 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 9 percent call premium on the old issue. The underwriting cost on the new \)18,000,000 issue is \(530,000, and the underwriting cost on the old issue was \)380,000. The company is in a 35 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision.

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Question: The Bowman Corporation has a \(18 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.5 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 9 percent call premium on the old issue. The underwriting cost on the new \)18,000,000 issue is \(530,000, and the underwriting cost on the old issue was \)380,000. The company is in a 35 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision.

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Jordan Broadcasting Company is going public at \(50 net per share to the company. There also are founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had \)26 million in earnings divided over 11 million shares. The public offering will be for 5 million shares; 3 million will be new corporate shares and 2 million will be shares currently owned by the founding stockholders.

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