EPS, P/E Ratio, and Dividend Ratios The Stockholders' Equity section of the balance sheet for Balla Enterprises at the end of 2017 appears as follows: 8%, $100 par, cumulative preferred stock, 200,000 shares authorized, 50,000 shares issued and outstanding $5,000,000 Additional paid-in capital on preferred 2,500,000 Common stock, $5 par, 500,000 shares authorized, 400,000 shares issued and outstanding 2,000,000 Additional paid-in capital on common 18,000,000 Retained earnings 37,500,000 Total stockholders' equity $65,000,000 Net income for the year was $1,350,000. Dividends were declared and paid on the preferred shares during the year, and a quarterly dividend of $0.40 per share was declared and paid each quarter on the common shares. The closing market price for the common shares on December 31, 2017, was $27.65 per share.
Required:
1. Compute the following ratios for the common stock:
When required, round earnings per share and price/earnings ratio answers to two decimal places. For dividend payout and dividend yield ratios, round raw calculations to 4 decimal places, but enter each answer as a percentage to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86, indicating 17.86%.
a. Earnings per share $
b. Price/earnings ratio to 1
c. Dividend payout ratio %
d. Dividend yield ratio %
2. Before recommending the stock of Balla to a client, as a financial adviser, you would like to know:
future earnings growth.
risk of the stock.
general economic trends and how they affect the company.
all of these.

Answers

Answer 1

Answer:

Balla Enterprises

1. Ratios for the common stock:

a. Earnings per share = Net income after preferred dividend/ Outstanding common stock shares

= $2.38

b. Price/Earnings ratio

= 11.62x

c. Dividend payout ratio

= 67.23%

d. Dividend Yield = Dividend per share/Market price per share

= 5.79%

2.  Before recommending the stock of Balla to a client, as a financial adviser, you would like to know:

all of these.

Explanation:

a) Data and Calculations:

Balla Enterprises

The Stockholders' Equity section of the balance sheet at the end of 2017 8%, $100 par, cumulative preferred stock:

200,000 shares authorized

50,000 shares issued and outstanding $5,000,000

Additional paid-in capital on preferred     2,500,000

Common stock, $5 par, 500,000 shares authorized,

400,000 shares issued and outstanding 2,000,000

Additional paid-in capital on common     18,000,000

Retained earnings                                   37,500,000

Total stockholders' equity                   $65,000,000

Net income for the year =                    $1,350,000

Dividends:

Preferred stock =                                   $400,000 ($5,000,000 * 8%)

Earnings after preferred dividend = $950,000 ($1,350,000 -$400,000)

Common stock = $640,000 ($0.40 * 4 * 400,000)

Closing market price of common stock on Dec. 31, 2017 = $27.65

1. Ratios for the common stock:

a. Earnings per share = Net income after preferred dividend/ Outstanding common stock shares

= $2.38 ($950,000/400,000)

b. Price/Earnings ratio = Market price of common stock/Earnings per share

= 11.62x ($27.65/$2.38)

c. Dividend payout ratio = Dividend per share/Earnings per share

= $1.60/$2.38

= 0.6723

= 67.23%

d. Dividend Yield = Dividend per share/Market price per share

= $1.60/$27.65

= 0.0579

= 5.79%

2.  Before recommending the stock of Balla to a client, as a financial adviser, you would like to know:

all of these.


Related Questions

Last month, the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit. This month, the company supplied the same quantity of binders at $4 per unit. Based on this evidence, Tecumseh has experienced:_________.
a. a decrease in supply
b. an increase in supply
c. an increase in the quantity supplied
d. a decrease in the quantity supplied.

Answers

Answer:

B

Explanation:

according to the law of supply, the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity supplied

in this question, there was only a change in price but no change in the quantity supplied.

so a change in supply and not a change in the quantity supply occured

determine supply per price

400 / 6 = 67

400 / 4 = 100

supply increased

Three months of rent were prepaid on May 1 for $7,200, but two months have now expired, leaving only one month prepaid at June 30. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?a- $0b- $2,400c- $4,800d- $7,200

Answers

Answer:

b- $2,400

Explanation:

The computation of the amount that should be recorded is given below:

= 3 months rent ÷ number of months

= $7,200 ÷ 3 months

= $2,400

Hence, the amount of rent that should be recorded is $2,400

Therefore the option b is correct

The same should be considered

Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items necessary to obtain net cash provided or used by operating activities. Carol Co. must be using the______method of reporting the statement of cash flows.

Answers

Answer:

indirect

Explanation:

From the question we are informed about Carol Co. prepares a statement of cash flows which start with net income and then adjusting for items necessary to obtain net cash provided or used by operating activities. In this case, Carol Co. must be using the

indirect method of reporting the statement of cash flows. In financial accounting, cash flow statement can be regarded as financial statement which express the way changes in balance sheet accounts as well as income affect cash and cash equivalents, and also give the analysis breakdown to operating, financing as well as investingactivities.

The methods for reporting statement of cash flows could be Direct or indirect method.

The indirect method can be regarded as method that gives presentation of the statement of cash flows by strating

with net income or net loss, along with deduction or additions to the amount for non-cash revenue and expense items or from them which comes subsequently, which then results to cash flow from operating activities.

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