Carla Vista Co. has $1,190,000 in assets and $1,190,000 in stockholders’ equity, with 35,800 shares outstanding...

Carla Vista Co. has $1,190,000 in assets and $1,190,000 in stockholders’ equity, with 35,800 shares outstanding the entire year. It has a return on assets of 10%. During 2021, it had net income of $119,000. On January 1, 2022, it issued $380,000 in debt at 4% and immediately repurchased 17,900 shares for $380,000. Management expected that, had it not issued the debt, it would have had net income of $119,000 in 2022. Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the debt was paid at December 31, 2022 and the company has no other debt outstanding at year-end.

Determine the company’s net income and earnings per share for 2021 and 2022. (Ignore taxes in your computations.) (Round earnings per share to 2 decimal places, e.g. $2.66.)

	2021	2022
Net income	$enter net income in dollars	$enter net income in dollars
Earnings per share	$enter earnings per share in dollars rounded to 2 decimal places	$enter earnings per share in dollars rounded to 2 decimal places

Compute the company’s return on common stockholders’ equity for 2021 and 2022. (Round answers to 2 decimal places, e.g. 15.25%)

		2021			2022
Return on common stockholders’ equity		enter return on common stockholders’ equity ratio in percentages rounded to 0 decimal places	%		enter return on common stockholders’ equity ratio in percentages rounded to 0 decimal places	%

Compute the company’s debt to assets ratio for 2021 and 2022. (Round answers to 2 decimal places, e.g. 15.25%)

		2021		2022
Debt to assets ratio		enter debt to assets ratio in percentages rounded to 0 decimal places	%	enter debt to assets ratio in percentages rounded to 0 decimal places	%

Solutions

Expert Solution

# Calculation Of net income and Earning per share

	2021	2022
Net Assets opening	$1190000	$1190000
Net Income(Net asset opening*10%	$119000	$119000
Less- Interest	$0	=$380000*4% =$15200

Net Income After Interest	$119000	=$103800
Nos of shares outstanding	35800	=35800-17900 =17900 shares
EPS	=$119000/35800 =$3.32 Per share	=$103800/17900 =$5.80 per share

Dividend Paid	$119000	$103800
Closing Net assets	= Opening net assets+Net income-dividend =$1190000+$119000-$119000 =$1190000	= Opening net assets+Net income-dividend =$1190000+$103800-$103800 =$1190000

Final Answer

	2021	2022
Net Income	$119000	$103800
Earning Per share	$3.32	$5.80

---------------------------------------------------

# Computation the company’s return on common stockholders’ equity-

Return on Common Equity Stakeholders Equity = Net income / Common stake holder equity

	2021	2021
Net Income(A)	$119000	$103800
Common stake holders equity(B)	$1190000	=$1190000-$380000 =$810000

Return on Common Equity(A/B-*100)	=$119000/$1190000*100 =10%	=$103800/$810000*100 =$12.81%

---------------------------

#Calculation of Debt to equity ratio

Debt to equity ratio = Total liabilities / Total Common stake holders equity

	2021	2022
Debt	$0	$380000
Other Libilities	$0	$0

Total Debt or Liabilities(A)	$0	$380000
Total Common stake holders Equity	$1190000	$810000

Debt equity ratio (in %)	=$0/$1190000*100 =0.00%	=$380000/$810000*100 =$46.91%

ekkarill92 answered 2 years ago

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