Question

Kovack Corporation's net operating income in Year 2 was $66,571, net income before taxes was $46,571, and the net income was $32,600. Total common stock was $120,000 at the end of both Year 2 and Year 1. The par value of common stock is $2 per share. The company's total stockholders' equity at the end of Year 2 amounted to $962,000 and at the end of Year 1 to $930,000. The company declared and paid $600 dividends on common stock. The market price per share was $4.37. The company's dividend yield ratio for Year 2 is closest to:

Answer 1

Answer:

The company's dividend yield ratio for Year 2 is closest to 0.2%

Explanation:

Dividend Yield Ratio: The dividend yield ratio is a financial ratio which helps to take the decisions regarding how much dividend is paid during a particular year.

It shows a ratio between dividend per share and market price par share.

The formula for computing the dividend yield ratio is equals to

Dividend per share ÷ Market Price per share

Since in the given question, the dividend per share is not given. So, we have to compute the dividend per share. The formula is shown below:

Dividend per share = Common stock dividend ÷ Common stock

                                = $600 ÷ $60,000

                                = 0.01 per share

Thus, the dividend per share is 0.01 per share.

Since, in the given question, the common stock is given for two years. But we have to compute for year 2 only. So, the common stock for year 2 is equals to common stock ÷ 2 years which is $120,000 ÷ 2 = $60,000 for each year.

Now, by applying the above formula. We can compute the dividend yield ratio for year 2. The computation is given below:

Dividend Yield Ratio = Dividend per share ÷ Market Price per share

                                  = 0.01 ÷ $4.37

                                  = 0.2%

Thus, the company's dividend yield ratio for Year 2 is closest to 0.2%