17. Benet, Inc. has total sales of $128,000 and a profit margin of 12.89 percent

Question

17. Benet, Inc. has total sales of $128,000 and a profit margin of 12.89 percent. Currently, the firm has 15,000 shares outstanding. What are the earnings per share? a. $.91 b. $1.10 c. $4.35 d. $7.43 e. $8.53 18. Battery Plus, Inc. has total assets of $642,000. There are 60,000 shares of stock outstanding with a market value of $19 a share. The firm has a profit margin of 6.4 percent and a total asset turnover of 1.36. What is the price-earnings ratio? a. 15.10 b. 20.40 c. 23.91 d. 27.56 e. 30.20 19. The common stock of McDonald and Sons is selling for $27.10 a share. The company has earnings per share of $.95 and a book value per share of $15.60. What is the market-to-book ratio? a. .58 b. 1.64 c. 1.74 d. 2.67 e. 2.85 20. Garner, Inc. has a return on equity of 12.5 percent, an equity multiplier of 1.7, and a total asset turnover of 2.1. What is the profit margin? a. 3.50 percent b. 3.57 percent c. 4.63 percernt d. 4.70 percent e. 7.35 percent

Explanation / Answer

Profit Margin = 12.89%
Sales = $128000
No.of shares outstanding = 15,000

Profit Margin=Net profit/Sales
12.89% = Net profit/128000
Net profit = 12.89%*128000
                  =$16499.2
EPS = Net Profit/No.pf shares outstanding
        = 16499.20/15000

        = $1.10 Option b

2. Total Assets = 642000
    no.of shares outstanding = 60000

Market value = $19 per share

Profit margin =6.4%
Total Asset Turnover = 1.36

Asset Turnover = Sales/Total Assets
1.36 = Sales/642000
Sales = 1.36*642000
         = $873120

Profit margin = Net Profit/Sales
6.4% = Net Profit/873120
Net Profit = 6.4%*873120
                  = 55879.68
Profit/earnings per share = Net Profit/No.of shares outstanding
                                             = 55879.68/60000
                                             = 0.931328
Price to earnings = 19/0.931328
                               = 20.40 Option b

3. Market Price = $27.10 per share
    EPS = $.95
Book value per share = $15.60

Market to book value = Market price/Book value
                                        = 27.10/15.60
                                       =1.74 Option c
4. Return on equity = 12.5%
Equity multiplier = 1.7

Total Asset Turnover = 2.1
Total Asset turnover = Sales/Total Assets

Profit margin = Return on Equity/(Equity multiplier*Total Asset Turnover)
                          = (Net Profit/Shareholder’s Equity) / [(Total Assets/Shareholder’s equity)*(sales/Total Assets)]
                          = Net Profit/Sales
                          = 12.5/(1.7*2.1)
                         = 3.50% Option a

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