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e Edit View History Bookmarks Window People Help MExhibit 118-2.JPG (1122x7 X M Chapter 13 e D ezto.mheducation.comhm.tpx?-=0.6604986861 346012-1449125874322 Homework Pro x Modern Building Supply sells various building materials to retail outlets. The company has just appre Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pr short-term obligations. The company's financial statements for the most recent two years follow: Modern Building Supply Comparative Balance Sheet This YearLast Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses s 64,000 140,000 19,000 462,000 295,000 40,000 597,000 18,000 23,000 1,484,000 1,074,000 1,692,924 1,522,217 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity $3,176,924 $2,596,217 Liabilities: Current liabilities Bonds payable, 9% $ 817,000 434 611,000611,000 Total liabilities 1,428,0001,045,000 Stockholders' equity: Preferred stock, $25 par, 7% Common stock, $10 par Retained eamings 290,000290,000 513,000513,000 748,217 945,924 Total stockholders' equity 1,748,924 ·1,551,217 Total liabilities and stockholder's equity $3,176,924 $2,596,217

Explanation / Answer

1. a) Earnings per share = (Net Income - Dividends on Preferred Stock) / Average Outstanding shares

                For This year = ($320607 - $20300) / 51300

                                    = $300307 / 51300

                                    = $5.85

               For Last year = ($242207 - $20300) / 51300

                                   = $221907 / 51300

                                   = $4.33

b) Dividend yield ratio = Dividend per share / Current share price

        For this year = ($102600 / 51300) / $38.61

                               = $2 / $38.61

                               = 0.05 ie. 5%

            For last year = ($66690 / 51300) / $36.37

                               = $1.3 / $36.37

                               = 0.036 ie. 3.6%

c) Dividend payout ratio = Dividends / Net Income

         For this year = $102600 / $320607

                                  = 0.32 ie. 32%

               For last year = $66690 / $242207

                                  = 0.28 or 28%

d) Price earning ratio = Market value per share / Earnings per share

            For this year = ($5018000 / 51300) / $5.85

                               = $97.82 / $5.85

                               = 16.7 or 17 times

        For last year = ($4362000 / 51300) / $4.33

                               = $85.03 / $4.33

                               = 19.6 or 20 times

e) Book value per share = (Total Shareholder's Equity - Preferred Equity) / Total Outstanding shares

              For this year = ($1748924 - $290000) / 51300

                                 = $1458924 / 51300

                                 = $28.44

              For last year = ($1551217 - $290000) / 51300

                                 = $1261217 / 51300

                                 = $24.59

2. a) Return on total assets = EBIT / Total net assets

                 For this year = ($320607 + $54990 + $137403) / $3176924

                                     = $513000 / $3176924

                                     = 0.16 ie. 16%

                 For last year = ($242207 + $54990 + $103803) / $2596217

                                    = $401000 / $2596217

                                    = 0.15 ie. 15%

b) Return on common stockholder's equity = Net income - Preferred dividend / Avg. common stockholder's equity

      For this year = ($320607 - $20300) / $513000

   = 0.59 ie. 59%

For last year = ($242207 - $20300) / $513000

   = 0.43 ie. 43%

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