Question

SME Company has a debt-equity ratio of .70. Return on assets is 8.5 percent, and total equity is $540,000.

  

a.	What is the equity multiplier? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c.	What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

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	$	34,785			$	38,204			Accounts payable	$	37,282			$	42,782
Accounts receivable		18,001				28,126			Notes payable		19,408				16,500
Inventory		3,730				42,792			Other		20,224				24,954
Total	$	56,516			$	109,122			Total	$	76,914			$	84,236
									Long-term debt	$	117,000			$	182,015
									Owners’ equity
									Common stock and paid-in surplus	$	55,400			$	55,400
									Accumulated retained earnings		271,867				307,704
Fixed assets
Net plant and equipment	$	464,665			$	520,233			Total	$	327,267			$	363,104
Total assets	$	521,181			$	629,355			Total liabilities and owners’ equity	$	521,181			$	629,355

SMOLIRA GOLF CORP. 2018 Income Statement
Sales					$	508,454
Cost of goods sold						360,728
Depreciation						44,963
Earnings before interest and taxes					$	102,763
Interest paid						20,083
Taxable income					$	82,680
Taxes (24%)						19,843
Net income					$	62,837
Dividends	$	27,000
Retained earnings		35,837

Smolira Golf Corp. has 44,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2018 was $27.

  

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 5 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

As per rules I am answering the first 4 subparts of the question

1:a : Equity Multiplier = Total assets/ Equity

= (Equity+ debt)/ Equity

= (70+100)/100

= 1.7

B:Total assets = Equity Multiplier * Equity

= 1.7*540000

= 918000

Net Income = ROA * Assets

= 8.5%*918000

= 78030

ROE = Net Income/ Equity

= 78030/ 540000

=14.45%

C: Net Income = 78030 (as above)

2: A: EPS = Net Income/ Shares outstanding

= 62837/44000

= 1.428114

PE Ratio = Price/ EPS

= 27/1.428114

= 18.91