Question

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

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.)

Homework Answers

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

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