Question

1.

Earnings per Share, Price-Earnings Ratio, Dividend Yield

The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:

Common stock, $30 par value (no change during the year)	$9,300,000
Preferred $5 stock, $100 par (no change during the year)	4,000,000

The net income was $572,000 and the declared dividends on the common stock were $77,500 for the current year. The market price of the common stock is $9.00 per share.

For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. If required, round your answers to two decimal places.

a. Earnings per Share	$
b. Price-Earnings Ratio
c. Dividends per Share	$
d. Dividend Yield		%

2.

Measures of liquidity, Solvency, and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 56 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			$4,770,100		$4,018,100
Net income			1,050,800		823,000
Total			$5,820,900		$4,841,100
Dividends:
	On preferred stock		$14,000		$14,000
	On common stock		57,000		57,000
		Total dividends	$71,000		$71,000
Retained earnings, December 31			$5,749,900		$4,770,100

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$5,861,535		$5,400,550
Cost of goods sold	2,180,510		2,006,070
Gross profit	$3,681,025		$3,394,480
Selling expenses	$1,178,190		$1,459,740
Administrative expenses	1,003,645		857,310
Total operating expenses	$2,181,835		$2,317,050
Income from operations	$1,499,190		$1,077,430
Other revenue	78,910		68,770
	$1,578,100		$1,146,200
Other expense (interest)	384,000		211,200
Income before income tax	$1,194,100		$935,000
Income tax expense	143,300		112,000
Net income	$1,050,800		$823,000

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$1,055,440		$1,033,180
	Marketable securities		1,597,420		1,712,120
	Accounts receivable (net)		1,138,800		1,073,100
	Inventories		846,800		657,000
	Prepaid expenses		199,684		206,640
		Total current assets	$4,838,144		$4,682,040
Long-term investments			4,083,676		1,985,569
Property, plant, and equipment (net)			5,280,000		4,752,000
Total assets			$14,201,820		$11,419,609
Liabilities
Current liabilities			$1,511,920		$1,869,509
Long-term liabilities:
	Mortgage note payable, 8%		$2,160,000		$0
	Bonds payable, 8%		2,640,000		2,640,000
		Total long-term liabilities	$4,800,000		$2,640,000
Total liabilities			$6,311,920		$4,509,509
Stockholders' Equity
Preferred $0.70 stock, $50 par			$1,000,000		$1,000,000
Common stock, $10 par			1,140,000		1,140,000
Retained earnings			5,749,900		4,770,100
Total stockholders' equity			$7,889,900		$6,910,100
Total liabilities and stockholders' equity			$14,201,820		$11,419,609

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.

1. Working capital	$
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables		days
6. Inventory turnover
7. Number of days' sales in inventory		days
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Times interest earned
11. Asset turnover
12. Return on total assets		%
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

Answer to Question 1:

Number of preferred shares = Preferred stock / Par value per preferred stock
Number of preferred shares = $4,000,000 / $100
Number of preferred shares = 40,000

Preferred dividend = Number of preferred shares * Preferred dividend per share
Preferred dividend = 40,000 * $5
Preferred dividend = $200,000

Number of common shares = Common stock / Par value per common stock
Number of common shares = $9,300,000 / $30
Number of common shares = 310,000

Earnings per share on common stock = (Net income - Preferred dividend) / Number of common shares
Earnings per share on common stock = ($572,000 - $200,000) / 310,000
Earnings per share on common stock = $1.20

Price-earnings ratio = Market price per share of common stock / Earnings per share on common stock
Price-earnings ratio = $9.00 / $1.20
Price-earnings ratio = 7.50

Dividends per share of common stock = Common dividends / Number of common shares
Dividends per share of common stock = $77,500 / 310,000
Dividends per share of common stock = $0.25

Dividend yield = Dividends per share of common stock / Market price per share of common stock
Dividend yield = $0.25 / $9.00
Dividend yield = 2.78%