Question

Here is the income statement for Myers, Inc. Myers, Inc. Income Statement For the Year Ended...

Here is the income statement for Myers, Inc.

Myers, Inc.
Income Statement
For the Year Ended December 31, 2020

Sales revenue $434,000
Cost of goods sold 222,000
Gross profit 212,000
Expenses (including $10,000 interest and $20,500 income taxes) 82,000
Net income $ 130,000


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 $13.75 in 2020.
3. Cash dividends of $27,300 were paid, $5,000 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

Homework Answers

Answer #1

(a)

Average number of common shares outstanding = (Number of common shares outstanding in the beginning + Number of common shares outstanding in the end)/2

= (16,000 + 24,000)/2

= 20,000

Earnings per share = (Net income – Preferred stock dividend)/Average number of common shares outstanding

= (130,000 – 5,000)/20,000

=125,000/20,000

= $6.25

(b)

Price earnings ratio = Market price of 1 common share/Earnings per share

= 13.75/6.25

= 2.2 times

(c)

Payout ratio = Cash dividends/Net income

= 27,300/130,000

= 21%

(d)

Times interest earned = (Net income + Interest expense + Tax expense)/Interest expense

= (130,000 + 10,000 + 20,500)/10,000

= 160,500/10,000

= 16.05 times

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