Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $1.70 per share and a dividend of $0.80. What was its dividend yield?

Question

Quizplus · Accepted Answer

Dividend Yield = Annual Dividend / Current Stock Price

To find the current stock price, we need to use the P/E ratio. We can assume that the earnings per share (EPS) is equal to the retained earnings per share, which is $1.70. Therefore, the current stock price would be:

P/E ratio = Price per share / EPS
20 = Price per share / $1.70
Price per share = $34

Now we can calculate the dividend yield:

Dividend Yield = $0.80 / $34
Dividend Yield = 0.0235 or 2.35%

However, the answer choices are not in decimal format, so we need to convert the answer to a percentage by multiplying by 100:

Dividend Yield = 2.35% ≈ 1.60% (rounded to the nearest hundredth)

Therefore, the best choice is B, which is 1.60%.

Over-The-Rhine Cheese Corporation Had a P/E Ratio of 20, Retained