Exercise 15-19 Shown below is the liabilities and stockholders’ equity section o

Question

Exercise 15-19

Shown below is the liabilities and stockholders’ equity section of the balance sheet for Concord Company and Marigold Company. Each has assets totaling $4,236,000.

Concord Co.

MarigoldCo.

For the year, each company has earned the same income before interest and taxes.

Concord Co.

Marigold Co.

At year end, the market price of Concord’s stock was $101 per share, and Marigold’s was $63.50. Assume balance sheet amounts are representative for the entire year.

(a) Calculate the return on total assets? (Round answers to 2 decimal places, e.g. 16.85%.)

Return on total assets

Which company is more profitable in terms of return on total assets?

(b) Calculate the return on common stock equity? (Round answers to 2 decimal places, e.g. 16.85%.)

Return on common stock
equity

Which company is more profitable in terms of return on common stockholders’ equity?

(c) Calculate the Net income per share. (Round answers to 2 decimal places, e.g. $6.85.)

Net income per share

Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year.

(d1) From the point of view of net income, is it advantageous to the stockholders of Concord Co. to have the long-term debt outstanding?

(e) What is the book value per share for each company? (Round answers to 2 decimal places, e.g. $6.85.)

Book value per share

Concord Co.

MarigoldCo.

Current liabilities $305,000 Current liabilities $535,000 Long-term debt, 9% 1,260,000 Common stock ($20 par) 3,070,000 Common stock ($20 par) 2,040,000 Retained earnings (Cash dividends, $336,000) 631,000 Retained earnings (Cash dividends, $213,000) 631,000 $4,236,000 $4,236,000

Explanation / Answer

CONCORD MARIGOLD RETURN ON TOTAL ASSETS NET INCOME / ASSETS 531630 / (4236000) 594000/(4236000) 12.55% 14.02% MARIGOLD IS HIGHER PROFITABLE RETURN ON COMMON STOCK NET INCOME / COMMON STOCK NET INCOME 531630 594000 COMMON STOCK 2040000+631000 3070000+631000 2671000 3701000 19.90% 16.05% CONCORD IS MORE PROFITABLE NET INCOME PER SHARE NET INCOME 531630 594000 TOTAL SHARES 102000 153500 NET INCOME PER SHARES 5.212058824 3.86970684 CONCORD HAVE A HIGHER NET INCOME PER SHARE BOOK VALUE PER SHARE BOOK VALUE OF TOTAL ASSETS 4236000 4236000 NO. OF SHARES 102000 153500 BOOK VALUE PER SHARE 41.52941176 27.59609121 CONCORD HAVE A HIGHER BOOK VALUE CONCORD HAVE A DEBT IN THE CAPITAL STRUCTURE, IT HAVE A HIGHER NET INCOME PER SHARE. IT IS ADVISABLE TO HAVE A DEBT IN THE CAPITAL STRUCTURE

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