Computation of retained earnings eps, dps

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Reference no: EM1317466

Computation of retained earnings EPS, DPS, and face value of the bond

1. Springsteen Music Company earned $820 million last year and paid out 20 percent of earnings in dividends.

a. By how much did the company\'s retained earnings increase?

b. With 100 million shares outstanding and a stock price of $50, what was the dividend yield? (Hint: First compute dividends per share.)

2. The shares of the Dyer Drilling Co. sell for $60. The firm has a P/E ratio of 15. Forty percent of earnings is paid out in dividends. What is the firm's dividend yield?

3. Laser Electronics Company has $30 million in 8 percent convertible bonds outstanding. The conversion ratio is 50; the stock price is $17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of $60 over their conversion value.

If the price of the common stock rises to $23 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $60 to $10.

Reference no: EM1317466

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