Question

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

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash				$	22,000
Accounts receivable, net					220,000
Merchandise inventory					380,000
Prepaid expenses					10,000
Total current assets					632,000
Property and equipment, net					830,000
Total assets				$	1,462,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	230,000
Bonds payable, 8%					340,000
Total liabilities					570,000
Stockholders’ equity:
Common stock, $10 par value				$	150,000
Retained earnings					742,000
Total stockholders’ equity					892,000
Total liabilities and equity				$	1,462,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,280,000
Cost of goods sold		1,240,000
Gross margin		1,040,000
Selling and administrative expenses		570,000
Net operating income		470,000
Interest expense		27,200
Net income before taxes		442,800
Income taxes (30%)		132,840
Net income	$	309,960

     Account balances at the beginning of the year were: accounts receivable, $230,000; and inventory, $290,000. All sales were on account.

Assume that Castile Products, Inc., paid dividends of $3.05 per share during the year. Also assume that the company’s common stock had a market price of $58 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.)

Answer 1

1. Earnings per share

Earnings per share = Net income / Number of shares

= $309,960 / 15,000 shares

= $20.66

2. Dividend payout ratio.

Dividend payout ratio = [Dividend per share / EPS] x 100

= [$3.05 / $20.66] x 100

= 14.76%

3.Dividend yield ratio

Dividend yield ratio = [Dividend per share / MPS] x 100

= [$3.05 / $58.00] x 100

= 5.3%

4.Price-earnings ratio

Price-earnings ratio = MPS / EPS

= $58.00 / $20.66

= 2.8 Times

5.Book value per share.

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

= $892,000 / 15,000 Shares

= $59.47