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Exercise 15-19 Shown below is the liabilities and stockholders’ equity section of the balance sheet for...
Exercise 15-19 Shown below is the liabilities and stockholders’ equity section of the balance sheet for Splish Company and Blossom Company. Each has assets totaling $4,327,000. Splish Co. BlossomCo. Current liabilities $285,000 Current liabilities $855,000 Long-term debt, 9% 1,220,000 Common stock ($20 par) 2,740,000 Common stock ($20 par) 2,090,000 Retained earnings (Cash dividends, $333,000) 732,000 Retained earnings (Cash dividends, $229,000) 732,000 $4,327,000 $4,327,000 For the year, each company has earned the same income before interest and taxes. Splish Co. Blossom Co. Income before interest and taxes $1,250,000 $1,250,000 Interest expense 109,800 0 1,140,200 1,250,000 Income taxes (45%) 513,090 562,500 Net income $627,110 $687,500 At year end, the market price of Splish’s stock was $101 per share, and Blossom’s was $63.50. Assume balance sheet amounts are representative for the entire year. (a) Calculate the return on total assets? (Round answers to 2 decimal places, e.g. 16.85%.) Return on total assets Splish Company % Blossom Company % Which company is more profitable in terms of return on total assets? (b) Calculate the return on common stock equity? (Round answers to 2 decimal places, e.g. 16.85%.) Return on common stock equity Splish Company % Blossom Company % Which company is more profitable in terms of return on common stockholders’ equity? (c) Calculate the Net income per share. (Round answers to 2 decimal places, e.g. $6.85.) Net income per share Splish Company $ Blossom Company $ Which company has the greater net income per share of stock? Neither company-issued or reacquired shares during the year. (d1) From the point of view of net income, is it advantageous to the stockholders of Splish Co. to have the long-term debt outstanding? (e) What is the book value per share for each company? (Round answers to 2 decimal places, e.g. $6.85.) Book value per share Splish Company $ Blossom Company $
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| Part a | ||||
| Splish | Blossom | |||
| Net Income | a | $ 627,110 | $ 687,500 | |
| Total Assets | b | $ 4,327,000 | $ 4,327,000 | |
| Return n Total Asset | a/b | 14.5% | 15.9% | |
| More Profitable | Blossom | |||
| Part b | ||||
| Splish | Blossom | |||
| Net Income | a | $ 627,110 | $ 687,500 | |
| Total Equity | b | $ 3,472,000 | $ 2,822,000 | |
| Return on total equity | a/b | 18.1% | 24.4% | |
| More Profitable | Blossom | |||
| Part c | ||||
| Splish | Blossom | |||
| Net Income | a | $ 627,110 | $ 687,500 | |
| No of Shares | b | 137,000 | 104,500 | |
| Net income per share | a/b | $ 4.6 | $ 6.6 | |
| More Profitable | Blossom | |||
| Part d | ||||
| No Since it is lowering net income per share | ||||
| Part e | ||||
| Splish | Blossom | |||
| No of Shares | a | 137,000 | 104,500 | |
| Total Equity | b | 3,472,000 | 2,822,000 | |
| Book value per share | b/a | $ 25.3 | $ 27.0 | |
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