18-8. Continued Plan b Dividend Per share PVIF 2%) PⅤ $.80 893 $71 3.30 797 2.63 712 25 4 2.80 636 6.60 567 3.74 Present Value of future dividends $9.11 Plan a will provide the higher present value of future dividends 18-9 The stock of Pills Berry Company is selling at $60 per share. The firm pays a dividend of $1. 80 per share a. What is the annual dividend yield? b. If the firm has a payout rate of 50 percent, what is the firms P/E ratio? Solution: Pills Berry Company a. annual dividend yield cash dividend/price =$180/s60=3.00% b. Earnings per share cash dividends/5 $l80/.5=$3 P/E ratio Price/earnings per share $60/$3.60=1667X CopyrightC 2005 by The McGran-Hill Companies, Inc. S-636Copyright © 2005 by The McGraw-Hill Companies, Inc. S-636 18-8. Continued Plan B Dividend Per Share x PVIF (12%) PV 1 $ .80 .893 $ .71 2 3.30 .797 2.63 3 .35 .712 .25 4 2.80 .636 1.78 5 6.60 .567 3.74 Present Value of future dividends $9.11 Plan A will provide the higher present value of future dividends. 18-9. The stock of Pills Berry Company is selling at $60 per share. The firm pays a dividend of $1.80 per share. a. What is the annual dividend yield? b. If the firm has a payout rate of 50 percent, what is the firm's P/E ratio? Solution: Pills Berry Company a. Annual dividend yield = cash dividend/price = $1.80/$60 = 3.00% b. Earnings per share = cash dividends/.5 = $1.80/.5 = $3.60 P/E ratio = Price/earnings per share = $60/$3.60 = 16.67x