Question

Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF CORP. 2017 and 2018 Balance...

Some recent financial statements for Smolira Golf Corp. follow.
SMOLIRA GOLF CORP.
2017 and 2018 Balance Sheets
Assets Liabilities and Owners’ Equity
2017 2018 2017 2018
  Current assets   Current liabilities
      Cash $ 35,885 $ 39,216       Accounts payable $ 39,372 $ 43,332
      Accounts receivable 18,551 29,116       Notes payable 20,508 17,325
      Inventory 4,060 43,232       Other 21,214 25,834
        Total $ 58,496 $ 111,564         Total $ 81,094 $ 86,491
  Long-term debt $ 122,500 $ 190,733
  Owners’ equity
      Common stock and paid-in surplus $ 56,500 $ 56,500
      Accumulated retained earnings 264,332 299,723
  Fixed assets
  Net plant and equipment $ 465,930 $ 521,883   Total $ 320,832 $ 356,223
  Total assets $ 524,426 $ 633,447   Total liabilities and owners’ equity $ 524,426 $ 633,447
SMOLIRA GOLF CORP.
2018 Income Statement
  Sales $ 513,954
  Cost of goods sold 364,578
  Depreciation 46,338
  Earnings before interest and taxes $ 103,038
  Interest paid 21,183
  Taxable income $ 81,855
  Taxes (25%) 20,464
  Net income $ 61,391
      Dividends $ 26,000
      Retained earnings 35,391

Smolira Golf Corp. has 55,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $32.

  

a.

What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What are the dividends per share? (Round your answer to 2 decimal places, e.g., 32.16.)
c. What is the market-to-book ratio at the end of 2018? (Round your answer to 2 decimal places, e.g., 32.16.)
d. If the company’s growth rate is 8 percent, what is the PEG ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Homework Answers

Answer #1

a). EPS = Net Income / No. of common stock outstanding

= $61,391 / 55,000 = $1.1162

Price-earnings ratio = Market Share Price / Earnings per share

= $32 / $1.1162 = 28.67 times

b). Dividends per share = Dividends paid / No. of common stock outstanding

= $26,000 / 55,000 = $0.47 per share

c). Market Value = No. of common stock outstanding * Market Price = 55,000 * $32 = $1,760,000

Market-to-book value = Market Value / Book value = $1,760,000 / $356,223 = 4.94 times

d). PEG Ratio = P/E ratio / Earnings growth rate = 28.67 / 8 = 3.58

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