Question

A company that has 350000 shares declares an annual gross profit of $2450665, pays 18.5% of this in tax, and reinvests 25% of the net profit. A) what is the dividend per share payable to the shareholders? B) what is the price-to-earnings ratio of the current share price is $43.36?

Answer 1

Gross profit, G = $2450665

Tax, t=18.5%

reinvestment, r = 25%

Total dividends

= G(1-t)(1-r)

=2450665*(1-0.185)(1-0.25)

=1497968.98

Dividend per share

=1497968.98/350000

=4.280

Earnings per share

EPS = Net profit / number of shares

= 2450665(1-0.185)/350000

=5.7065

Current price = 43.36

P/E ratio

= Current price/EPS

= 43.36/5.7065

= 7.598

=7.6 to one decimal place.