Question

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	$	36,085			$	39,400			Accounts payable	$	39,752			$	43,432
Accounts receivable		18,651				29,296			Notes payable		20,708				17,475
Inventory		4,120				43,312			Other		21,394				25,994
Total	$	58,856			$	112,008			Total	$	81,854			$	86,901
									Long-term debt	$	123,500			$	187,898
									Owners’ equity
									Common stock and paid-in surplus	$	56,700			$	56,700
									Accumulated retained earnings		262,962				302,692
Fixed assets
Net plant and equipment	$	466,160			$	522,183			Total	$	319,662			$	359,392
Total assets	$	525,016			$	634,191			Total liabilities and owners’ equity	$	525,016			$	634,191

SMOLIRA GOLF CORP. 2018 Income Statement
Sales					$	514,954
Cost of goods sold						365,278
Depreciation						46,588
Earnings before interest and taxes					$	103,088
Interest paid						21,383
Taxable income					$	81,705
Taxes (22%)						17,975
Net income					$	63,730
Dividends	$	24,000
Retained earnings		39,730

Smolira Golf Corp. has 57,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $28.

  

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 6 percent, what is the PEG ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer to Requirement a:

Price – Earnings Ratio = Price per Share / Earnings per Share

Earnings per Share = Net Income / Common Stock Outstanding
Earnings per Share = $63,730 / 57,000
Earnings per Share = $1.1181

Price – Earnings Ratio = $28/ $1.1181
Price – Earnings Ratio = 25.04

Answer to Requirement b:

Dividend per Share = Dividend Paid/ Common Stock Outstanding
Dividend per Share = $24,000 / 57,000
Dividend per Share = $0.42

Answer to Requirement c:

Market to Book Ratio = Market Price per Share / Book Value per Share
Book Value per Share = Total Equity / Common Stock Outstanding
Book Value per Share = $359,392 / 57,000
Book Value per Share = $6.3051

Market to Book Ratio = $28 / $6.3051
Market to Book Ratio = 4.44 times

Answer to Requirement d:

PEG Ratio = PE Ratio / Growth rate
PEG Ratio = 25.04 / 6
PEG Ratio = 4.17