Question

Here is the income statement for Myers, Inc.

Myers, Inc. Income Statement For the Year Ended December 31, 2020
Sales revenue		$420,000
Cost of goods sold		224,000
Gross profit		196,000
Expenses (including $10,000 interest and $21,500 income taxes)		106,000
Net income		$ 90,000

Additional information:

1.		Common stock outstanding January 1, 2020, was 16,000 shares, and 24,000 shares were outstanding at December 31, 2020.
2.		The market price of Myers stock was $18.26 in 2020.
3.		Cash dividends of $21,600 were paid, $7,000 of which were to preferred stockholders.

Compute the following measures for 2020. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)

(a)		Earnings per share		$
(b)		Price-earnings ratio			times
(c)		Payout ratio			%
(d)		Times interest earned			times

Answer 1

Earnings per share	4.15
Price earnings ratio	4.4
Payout ratio	16.2%
Times interest earned	12.2 times

Working: a.

A	Net Income	90000
B	Preferred stock dividend	7000
C = A - B	Net Income for Common Stockholder	83000
D	Beginning common stock outstanding	16000
E	Ending common stock outstanding	24000
F = (D+E)/2	Average common stock outstanding	20000
G = C/F	Earnings per share	4.15

b.

A	Market price per share	18.26
B	Earnings per share	4.15
C = A/B	Price earnings ratio	4.4

c.

A	Dividend to common stock holders	14600
B	Net Income	90000
C= A/B	Payout ratio	16.2%

d.

A	Net Income	90000
B	Interest expense	10000
C	Income taxes	21500
D = A+B+C	Earnings before interest and tax	121500
E = D/B	Times interest earned	12.2

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