Question

The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc.
Balance Sheet
December 31

  Assets      

  Current assets:      

     Cash   $21,000

     Accounts receivable, net    250,000

     Merchandise inventory    370,000

     Prepaid expenses    12,000

    

  Total current assets    653,000

  Property and equipment, net    820,000

    

  Total assets   $1,473,000

    

  Liabilities and Stockholders' Equity      

  Liabilities:      

     Current liabilities   $260,000

     Bonds payable, 11%    400,000

    

  Total liabilities    660,000

  Stockholders’ equity:      

     Common stock, $10 par value   $150,000

     Retained earnings    663,000

    

  Total stockholders’ equity    813,000

    

  Total liabilities and equity   $1,473,000

    

Castile Products, Inc.
Income Statement
For the Year Ended December 31

  Sales$2,200,000

  Cost of goods sold 1,180,000

  Gross margin 1,020,000

  Selling and administrative expenses 650,000

  Net operating income 370,000

  Interest expense 44,000

  Net income before taxes 326,000

  Income taxes (30%) 97,800

  Net income$228,200

     Account balances at the beginning of the year were: accounts receivable, $190,000; and inventory, $330,000. All sales were on account.

Assume that Castile Products, Inc., paid dividends of $4.05 per share during the year. Also assume that the company’s common stock had a market price of $67 at the end of the year and there was no change in the number of outstanding shares of common stock during the year.

Required:

Compute financial ratios as follows:

1.

Earnings per share. (Round your answer to 2 decimal places.)


      

2.

Dividend payout ratio. (Round your intermediate calculations to 2 decimal places. Round your final percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).)

       

3.

Dividend yield ratio. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).)


       

4.

Price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.)


       

5.

Book value per share. (Round your answer to 2 decimal places.)


       

Homework Answers

Answer #1

1.Earnings per share

Earnings per share = Net Income / Number of common shares

= $228,200 / 15,000 Shares

= $15.21 per share

    

2.Dividend payout ratio

Dividend payout ratio = (Dividend per share / EPS) x 100

= ($4.05 / $15.21) x 100

= 26.63%

     

3.Dividend yield ratio

Dividend yield ratio = (Dividend per share / Market price per share) x 100

= ($4.05 / ($67.00) x 100

= 6.0%

     

4.Price-earnings ratio.

Price-earnings ratio = Market price per share / EPS

= $67.00 / $15.21

= 4.4 Times

5.Book value per share

Book value per share = Total stockholders’ equity / Number of common shares

= $813,000 / 15,000 Shares

= $54.20 per share

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