Moselle Corporation has provided the following financial data:Balance SheetDecember 31, Year 2 and Year 1AssetsYear 2Year 1Current assets: Cash$252,000 $200,000 Accounts receivable, net 255,000 260,000 Inventory 133,000 120,000 Prepaid expenses 18,000 20,000 Total current assets 658,000 600,000 Plant and equipment, net 681,000 730,000 Total assets$ 1,339,000 $ 1,330,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$177,000 $190,000 Accrued liabilities 25,000 30,000 Notes payable, short term 39,000 40,000 Total current liabilities 241,000 260,000 Bonds payable 200,000 200,000 Total liabilities 441,000 460,000 Stockholders' equity:

Question

Common stock, $4 par value 240,000  240,000   Additional paid-in capital 80,000  80,000   Retained earnings 578,000  550,000 Total stockholders' equity 898,000  870,000 Total liabilities & stockholders' equity$ 1,339,000 $ 1,330,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,400,000 Cost of goods sold 900,000 Gross margin 500,000 Operating expenses 436,462 Net operating income 63,538 Interest expense 14,000 Net income before taxes 49,538 Income taxes (35%) 17,338 Net income$  32,200 Dividends on common stock during Year 2 totaled $4,200. The market price of common stock at the end of Year 2 was $9.72 per share.Required:a. What is the company's earnings per share for Year 2?b. What is the company's price-earnings ratio for Year 2?c. What is the company's dividend payout ratio for Year 2?d. What is the company's dividend yield ratio for Year 2?e. What is the company's book value per share at the end of Year 2?

What will be an ideal response?

Answer 1

a.
Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $32,200 ÷ 60,000 shares = $0.54 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $240,000 ÷ $4 per share = 60,000 shares

b.
Price-earnings ratio = Market price per share ÷ Earnings per share
= $9.72 ÷ $0.54 = 18.00 (rounded)

c.
Dividend payout ratio = Dividends per share* ÷ Earnings per share
= $0.07 ÷ $0.54 = 13.0% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $4,200 ÷ 60,000 shares = $0.07 per share (rounded)

d.
Dividend yield ratio = Dividends per share* ÷ Market price per share
= $0.07 ÷ $9.72 = 0.72% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $4,200 ÷ 60,000 shares = $0.07 per share (rounded)

e.
Book value per share = Common stockholders' equity ÷ Number of common shares outstanding*
= $898,000 ÷ 60,000 shares = $14.97 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $240,000 ÷ $4 per share = 60,000 shares