Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 59 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
			20Y2		20Y1
Retained earnings, January 1			$1,945,250		$1,654,850
Net income			438,000		338,900
Total			$2,383,250		$1,993,750
Dividends:
	On preferred stock		$14,000		$14,000
	On common stock		34,500		34,500
		Total dividends	$48,500		$48,500
Retained earnings, December 31			$2,334,750		$1,945,250

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$2,995,920		$2,760,260
Cost of goods sold	1,095,000		1,007,400
Gross profit	$1,900,920		$1,752,860
Selling expenses	$660,370		$805,710
Administrative expenses	562,540		473,200
Total operating expenses	$1,222,910		$1,278,910
Income from operations	$678,010		$473,950
Other revenue	35,690		30,250
	$713,700		$504,200
Other expense (interest)	216,000		119,200
Income before income tax	$497,700		$385,000
Income tax expense	59,700		46,100
Net income	$438,000		$338,900

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$522,530		$436,960
	Marketable securities		790,860		724,120
	Accounts receivable (net)		540,200		511,000
	Inventories		408,800		321,200
	Prepaid expenses		98,863		87,390
		Total current assets	$2,361,253		$2,080,670
Long-term investments			1,377,722		321,139
Property, plant, and equipment (net)			2,970,000		2,673,000
Total assets			$6,708,975		$5,074,809
Liabilities
Current liabilities			$814,225		$779,559
Long-term liabilities:
	Mortgage note payable, 8%		$1,210,000		$0
	Bonds payable, 8%		1,490,000		1,490,000
		Total long-term liabilities	$2,700,000		$1,490,000
Total liabilities			$3,514,225		$2,269,559
Stockholders' Equity
Preferred $0.70 stock, $20 par			$400,000		$400,000
Common stock, $10 par			460,000		460,000
Retained earnings			2,334,750		1,945,250
Total stockholders' equity			$3,194,750		$2,805,250
Total liabilities and stockholders' equity			$6,708,975		$5,074,809

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

13. Return on stockholders’ equity		%
14. Return on common stockholders’ equity		%
15. Earnings per share on common stock	$
16. Price-earnings ratio
17. Dividends per share of common stock	$
18. Dividend yield		%

Answer 1

Return on stockholders' equity = Net income / Average stockholders' equity

Return on stockholders' equity = $438,000 / $3,000,000 (3,194,750+2,805,250 /2) = 14.6%

Return on common stockholders' equity = Net income - Preferred dividend / Average common stockholders' equity

Return on common stockholders' equity = $438,000 - 14,000 / $2,600,000 (2,794,750+2,405,250 /2) = 16.3%

Earning per share on common stock = Net income - Preferred dividend / Common shares outstanding

Earning per share on common stock = $438,000 - 14,000 / 46,000 = $9.23 per share

Price earning ratio = Market price per share / Earning per share

Price earning ratio = $59 / $9.23 = 6.4

Dividend per share of common stock = Dividend on common stock / Common shares outstanding

Dividend per share of common stock = $34,500 / 46,000 = $0.75

Dividend yield ratio = Dividend per share / Market price per share

Dividend yield ratio = $0.75 / $59 = 1.3%