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ch 13 exercises #6 Comparative financial statements for Weller Corporation, a merchandising company, for the year...

ch 13 exercises #6

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $18.00. All of the company’s sales are on account.

Weller Corporation
Comparative Balance Sheet
(dollars in thousands)
This Year Last Year
  Assets
  Current assets:
     Cash $ 1,280 $ 1,560
     Accounts receivable, net 12,300 9,100
     Inventory 9,700 8,200
     Prepaid expenses 1,800 2,100






  Total current assets 25,080 20,960






  Property and equipment:
     Land 6,000 6,000
     Buildings and equipment, net 19,200 19,000






  Total property and equipment 25,200 25,000






  Total assets $ 50,280 $ 45,960












  Liabilities and Stockholders' Equity
  Current liabilities:
     Accounts payable $ 9,500 $ 8,300
     Accrued liabilities 600 700
     Notes payable, short term 300 300






  Total current liabilities 10,400 9,300
  Long-term liabilities:
     Bonds payable 5,000 5,000






  Total liabilities 15,400 14,300






  Stockholders' equity:
     Common stock 800 800
     Additional paid-in capital 4,200 4,200






       Total paid-in capital 5,000 5,000
       Retained earnings 29,880 26,660






  Total stockholders' equity 34,880 31,660






  Total liabilities and stockholders' equity $ 50,280 $ 45,960













Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
  Sales $ 79,000 $ 74,000
  Cost of goods sold 52,000 48,000






  Gross margin 27,000 26,000






  Selling and administrative expenses:
     Selling expenses 8,500 8,000
     Administrative expenses 12,000 11,000






  Total selling and administrative expenses 20,500 19,000






  Net operating income 6,500 7,000
  Interest expense 600 600






  Net income before taxes 5,900 6,400
  Income taxes 2,360 2,560






  Net income 3,540 3,840
  Dividends to common stockholders 320 600






  Net income added to retained earnings 3,220 3,240
  Beginning retained earnings 26,660 23,420






  Ending retained earnings $ 29,880 $ 26,660













Required:
Compute the following financial data for this year:

a.

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


      

b.

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


       

c.

Dividend payout ratio. (Round your intermediate calculations and final answer to 2 decimal places.)


       

d.

Dividend yield ratio. (Round your intermediate calculations and final answer to 2 decimal places.)


       

e.

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


       

Homework Answers

Answer #1

Solution:

(a). Earnings per share

= Net income / Average number of common shares outstanding

=$ 3,540/800

=$ 4.43

(b). Price earnings ratio

= Market price per share / Earnings per share

=$ 18/ $4.43

=$ 4.06

(c). Dividend payout ratio

=Dividend per share / Earnings per share

= $ 0.40 / $4.43

= 0.09 or 9%

(d). Dividend yield ratio

= Dividend per share / Market price per share

=$ 0.40 / $ 18

=0.02

(e).Book value per share

= Total stockholders' equity / Number of outstanding common shares

=$ 34,880 / 800

=$ 43.60

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