Exercise 2: Answer each of Ms. Martines questions and explain how you arrives at your answer.

a) Is the market price of the company’s share going up and down?

Answer: It is decreasing over the years because looking at the formula of dividend yield
ratio, it is computed by dividing dividend per share by the market value per share. Since
dividend yield ratio is given as well as the dividend per share, dividing dividend per share
by the dividend yield ratio, we will get P83, P62.5 and P50 market value per share for the
years 1-3 respectively.

2.5 2.5 2.5

Year 1 = = P80 Year 2 = = P62.5 Year 3 =
3% 4% 5%
= P50

b) Is the earnings per share increasing or decreasing?

Answer: It is increasing over the years because looking at the formula of dividend payout
ratio, it is computed by dividing dividend per share by earnings per share. Since dividend
payout ratio is given as well as the dividend per share, dividing dividend per share by
dividend payout ratio, we will get P4.16, P5, 6.25 earnings per share for the years 1-3
respectively.

2.5 2.5 2.5

Year 1 = = P4.16 Year 2 = = P5 Year 3 = = P6.25
60 % 50 % 40 %

c) Is the price earnings ratio going up and down?

Answer: It is decreasing over the years because looking at the formula of price earnings
ratio, it is computed by dividing market value per share over earnings per share. Since both
of them are computed in questions a and b, we can already have a formula and we can
come up with, 19.23, 12.5, 8 price ratio earnings for the years 1-3 respectively.

P 80 P 62.5 P50
Year 1 = = 19.23 Year 2 = = 12.5 Year 3 = =8
P 4.16 P5 P 6.25