You are planning to invest up to $16,000 in IBM, HPQ, and AAPL shares. You desire to maximize your share of the companies' earnings but, for tax reasons, want to earn no more than $320 in dividends. Your broker suggests that because AAPL stocks pay no dividends, you should invest only in AAPL. Is she right $$\begin{array} { | c | c | c | c | }
\hline & \text { Price } & \begin{array} { c }
\text { Dividend } \
\text { Yield }
\end{array} & \begin{array} { c }
\text { Earnings } \
\text { per share }
\end{array} \
\hline \text { IBM } & \$ 80 & 1 \% & \$ 5 \
\hline \begin{array} { c }
\text { HPQ (Hewlett } \
\text { Packard) }
\end{array} & \$ 20 & 2 \% & \$ 1 \
\hline \text { AAPL (Apple) } & \$ 70 & 0 \% & \$ 1 \
\hline
\end{array}$$

Question

You are planning to invest up to $16,000 in IBM, HPQ, and AAPL shares. You desire to maximize your share of the companies' earnings but, for tax reasons, want to earn no more than $320 in dividends. Your broker suggests that because AAPL stocks pay no dividends, you should invest only in AAPL. Is she right  $$\begin{array} { | c | c | c | c | } 
\hline & \text { Price } & \begin{array} { c } 
\text { Dividend } \
\text { Yield }
\end{array} & \begin{array} { c } 
\text { Earnings } \
\text { per share }
\end{array} \
\hline \text { IBM } & \$ 80 & 1 \% & \$ 5 \
\hline \begin{array} { c } 
\text { HPQ (Hewlett } \
\text { Packard) }
\end{array} & \$ 20 & 2 \% & \$ 1 \
\hline \text { AAPL (Apple) } & \$ 70 & 0 \% & \$ 1 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The broker's advice to invest only in AAPL because it pays no dividends overlooks the goal of maximizing earnings per share. While AAPL pays no dividends, its earnings per share are $1, the same as HPQ but lower than IBM's $5. Therefore, investing in IBM could potentially offer higher earnings per share while still managing dividend income to stay within the desired limit.

You Are Planning to Invest Up to $16,000 in IBM