Question

begin by selecting the formula to compute the dividend payout.
dividend payout = annual dividend per share ÷ earnings per share
now, compute the dividend payout for both companies. (round interim answers to two decimal places, x.xx, and your final answers to the nearest whole percent, x%.)

electricity corp zone, inc
dividend payout % %

requirement 2. decide which company’s stock better fits your investment strategy.
dropdown common stock answers to fit the investment strategy better. its price/earnings ratio is dropdown and dropdown. on the majority of the cases,
dropdown

balance sheet and market price data
total liabilities 103,000 137,000
common stock
$1 par (11,000 shares) 11,000
$1 par (21,000 shares) 21,000
total stockholders’ equity 137,000 200,000
market price per share of common stock 71.26 99.50
dividends paid per common share 0.80 0.50
selected balance sheet data at the beginning of the current year
electricity corp zone
current assets
accounts receivable, net $ 30,000 $ 51,000
merchandise inventory 71,000 87,000
total assets 205,000 270,000
current liabilities

income statement data
selected income statement data for the current year
electricity corp zone
net sales revenue (all on credit) $ 475,000 $ 400,000
cost of goods sold 200,000 290,000
interest expense 0 22,000
net income 95,000 79,000

Explanation:

Step 1: Recall the dividend payout formula

The formula for dividend payout is $\text{Dividend payout} = \frac{\text{Annual dividend per share}}{\text{Earnings per share}} \times 100\%$. First, we need to find earnings per share (EPS) for each company. EPS is calculated as $\text{EPS} = \frac{\text{Net income}}{\text{Number of shares}}$.

Step 2: Calculate EPS for Electricity Corp

For Electricity Corp, net income is $96,000$ and number of shares is $11,000$ (from common stock: $\$1$ par, $11,000$ shares). So, $\text{EPS} = \frac{96000}{11000} \approx 8.7273$.

Step 3: Calculate dividend payout for Electricity Corp

Annual dividend per share is $\$0.80$. Using the dividend payout formula: $\text{Dividend payout} = \frac{0.80}{8.7273} \times 100\% \approx 9.17\%$.

Step 4: Calculate EPS for Zone, Inc

For Zone, Inc, net income is $70,500$ and number of shares is $21,000$ (from common stock: $\$1$ par, $21,000$ shares). So, $\text{EPS} = \frac{70500}{21000} \approx 3.3571$.

Step 5: Calculate dividend payout for Zone, Inc

Annual dividend per share is $\$0.50$. Using the dividend payout formula: $\text{Dividend payout} = \frac{0.50}{3.3571} \times 100\% \approx 14.89\%$.

Answer:

Electricity Corp: $\approx 9.17\%$, Zone, Inc: $\approx 14.89\%$