The following information applies to Acorn Construction Company (ACC):?Year 2Year 1Net sales$ 880,000$ 600,000Income before interest and taxes127,50084,000Net income59,00052,000Interest expense24,50015,000Stockholders' equity, December 31810,300725,000Common stock750,300700,000Preferred stock dividends24,00024,000Information on the number of shares outstanding is provided below:Avg. # of shares outstanding Year 138,000Avg. # of shares outstanding Year 233,000Required:Compute the following ratios for ACC for Year 2 and Year 1:(a) Number of times interest is earned(b) Earnings per share(c) Price-earnings ratio (Market prices: Year 2 $17.50 per share, Year 1 $15.00 per share)(d) Return on equity(e) Net margin.
What will be an ideal response?
| ? | Year 2 | Year 1 |
| Number of times interest is earned: | ? | ? |
| Income before taxes and interest/bond interest expense | ? | ? |
| (127,500/24,500) | 5.2 | ? |
| (84,000/15,000) | ? | 5.6 |
| Earnings per share: | ? | ? |
| (Net income - preferred dividends)/Avg. common shares | ? | ? |
| outstanding | ? | ? |
| (59,000 - 24,000)/33,000 | $ 1.06 | ? |
| (52,000 - 2400)/38,000 | ? | $ 0.74 |
| Price-earnings ratio: | ? | ? |
| Market price/earnings per share | ? | ? |
| $17.50/$1.06 | 16.51 | ? |
| $15.00/$0.74 | ? | 20.27 |
| Return on equity: | ? | ? |
| Net income/total stockholders' equity | ? | ? |
| 59,000/810,300 | 7.3% | ? |
| 52,000/725,000 | ? | 7.2% |
| Net margin: | ? | ? |
| Net income/net sales | ? | ? |
| 59,000/880,000 | 6.7% | ? |
| 52,000/600,000 | ? | 8.7% |
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