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) |
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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 | ||||
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Total current assets | 25,080 | 20,960 | ||||
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Property and equipment: | ||||||
Land | 6,000 | 6,000 | ||||
Buildings and equipment, net | 19,200 | 19,000 | ||||
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Total property and equipment | 25,200 | 25,000 | ||||
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Total assets | $ | 50,280 | $ | 45,960 | ||
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Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 9,500 | $ | 8,300 | ||
Accrued liabilities | 600 | 700 | ||||
Notes payable, short term | 300 | 300 | ||||
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Total current liabilities | 10,400 | 9,300 | ||||
Long-term liabilities: | ||||||
Bonds payable | 5,000 | 5,000 | ||||
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Total liabilities | 15,400 | 14,300 | ||||
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Stockholders' equity: | ||||||
Common stock | 800 | 800 | ||||
Additional paid-in capital | 4,200 | 4,200 | ||||
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Total paid-in capital | 5,000 | 5,000 | ||||
Retained earnings | 29,880 | 26,660 | ||||
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Total stockholders' equity | 34,880 | 31,660 | ||||
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Total liabilities and stockholders' equity | $ | 50,280 | $ | 45,960 | ||
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Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) |
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This Year | Last Year | |||||
Sales | $ | 79,000 | $ | 74,000 | ||
Cost of goods sold | 52,000 | 48,000 | ||||
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Gross margin | 27,000 | 26,000 | ||||
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Selling and administrative expenses: | ||||||
Selling expenses | 8,500 | 8,000 | ||||
Administrative expenses | 12,000 | 11,000 | ||||
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Total selling and administrative expenses | 20,500 | 19,000 | ||||
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Net operating income | 6,500 | 7,000 | ||||
Interest expense | 600 | 600 | ||||
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Net income before taxes | 5,900 | 6,400 | ||||
Income taxes | 2,360 | 2,560 | ||||
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Net income | 3,540 | 3,840 | ||||
Dividends to common stockholders | 320 | 600 | ||||
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Net income added to retained earnings | 3,220 | 3,240 | ||||
Beginning retained earnings | 26,660 | 23,420 | ||||
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Ending retained earnings | $ | 29,880 | $ | 26,660 | ||
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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.) |
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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