Question

Turn to Figure 2.8 and look at the listing for General Dynamics.

a. What was the firm’s closing price yesterday?

b. How many shares could you buy for $5,000?

c. What would be your annual dividend income from those shares?

d. What must be General Dynamics’ earnings per share?

Short answer

a. $74.63

b. 66.14 shares

c. $94

d. $6.92

Step-by-step solution

Definition

General Dynamics is a global aerospace and defense company. It was the fifth largest company in US and sixth largest company in the world by sales.

Solution for ‘a’

a. The closing price today is $75.60 which is $0.97 from the previous price.

Therefore yesterday’s selling price = $75.60 - $0.97 =$74.63

Solution for ‘b’

b. Number of shares you could buy for $5000 = $5000 / $75.60 = 66.14 shares

Solution for ‘c’

c. Your annual dividend income would be = 1.88% of $5000 = $94

Solution for ‘d’

d. Earnings per share can be derived from the price earning (PE) ratio.

Price Earning = 10.92

Price = $75.60

So the earnings = $75.60 / 10.92 = $6.92