Patrick is the CFO of Reed Inc. Patrick says that RI earned $13 million last year and maintains a 30% dividend payout ratio. The company has 2 million shares of common stock outstanding and a P/E ratio of 10. What is the dividend yield for RI?

a. 1.50%
b. 2.50%
c. 3.00%
d. 4.50%

Dividend yield is the proportion of a share a price that is earned as dividend. In other words, it is the dividend paid as a percentage of the share price.

Dividend yield = DPS/Share price × 100

The share price can be determined using the P/E ratio as follows:

Share price = P/E × EPS

Earnings per share (EPS) = $13 million/ 2 million

= $6.5 per share

Share price = 10 × $6.5 = $65

Dividend paid (Dividend per share) = Payout ratio × EPS

= 30% × $6.5

= $1.95 per share

Dividend yield = DPS/Share price × 100

= 1.95/65 × 100

= 3%

Patrick is the CFO of Reed Inc. Patrick says that RI earned $13 million last year and maintains a 30% dividend payout ratio. The company has 2 million shares of common stock outstanding and a P/E ratio of 10. What is the dividend yield for RI? a. 1.50% b. 2.50% c. 3.00% d. 4.50%

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Patrick is the CFO of Reed Inc. Patrick says that RI earned $13 million last year and maintains a 30% dividend payout ratio. The company has 2 million shares of common stock outstanding and a P/E ratio of 10. What is the dividend yield for RI?

a. 1.50%
b. 2.50%
c. 3.00%
d. 4.50%