The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million. In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4 percent. If the price-earnings ratio is 16, then Biggie's total earnings in 2007 amounted to
A)$1.92 million.
B)$87.50 million.
C)$375.00 million.
D)$960.00 million.

Question

Quizplus · Accepted Answer

The dividend yield is calculated as the annual dividend per share divided by the price per share. Given a dividend of $2.40 and a yield of 4%, the price per share is $60 ($2.40 / 0.04). With a price-earnings ratio of 16, the earnings per share (EPS) is $3.75 ($60 / 16). Therefore, total earnings are $375 million (100 million shares * $3.75 EPS).

The Number of Shares of Biggie Corporation Stock Outstanding in 2007