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1)Cost of goods sold: Investment income: Net sales: Operating expense: Interest expense: Dividends: Tax rate: $ 214,000 $ 2,200 $328,000 $ 45,000 $ 7,400 $ 8,000 30% Current liabilities: Cash: Long-term debt: Other assets: Fixed assets: Other liabilities: Investments: Operating assets: $ 16,000 $ 21,000 $ 26,000 $ 38,000 $156,000 $ 5,000 $ 42,000 $ 35,000 During the year, Smashville, Inc
1)Cost of goods sold: Investment income: Net sales: Operating expense: Interest expense: Dividends: Tax rate: $ 214,000 $ 2,200 $328,000 $ 45,000 $ 7,400 $ 8,000 30% Current liabilities: Cash: Long-term debt: Other assets: Fixed assets: Other liabilities: Investments: Operating assets: $ 16,000 $ 21,000 $ 26,000 $ 38,000 $156,000 $ 5,000 $ 42,000 $ 35,000 During the year, Smashville, Inc., had 20,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Book value per share Earnings per share Cash flow per share
2) Your folks just called and wouldd like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $10,774.41 that will pay them $1,500 per year for 15 years. They don't have the slightest idea what return they would be making on their investment of $10,774.41 What rate of return would they be earning? The annual rate of return your folks would be earning on their investment is %. (Round to two decimal places.)
(Annuity interest rate) You've been offered a loan of $15,000, which you will have to repay in 7 equal annual payments of $4,000, with the first payment due one year from now. What interest rate would you pay on that loan? The interest rate you would pay on the loan is % (Round to two decimal places.)
3)Cost of goods sold: Investment income: Net sales: Operating expense: Interest expense: Dividends: Tax rate: $234,000 $ 2,600 $397,000 $ 92,000 $ 7,400 $ 12,000 40% Current liabilities: Cash: Long-term debt: Other assets: Fixed assets: Other liabilities: Investments: Operating assets: $ 20,000 $ 21,000 $ 22,000 $ 42,000 $ 131,000 $ 5,000 $ 46,000 $ 47,000 During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $18,000. At the end of the year, Smashville stock sold for $55 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price-book ratio Price-earnings ratio Price-cash flow ratio
Expert Solution
1)
To calculate the eani9ng per share. We need to find the net profit.
So the income statement is as follow:
|
Particulars |
Working |
Amount |
|
Sales |
$ 328,000 |
|
|
Less: Cost of goods sold |
$ 214,000 |
|
|
EBIT |
$ 114,000 |
|
|
Add: investing income |
$ 2,200 |
|
|
Less: operating expense |
$ 45,000 |
|
|
Less: depreciation |
$ 15,000 |
|
|
Less : interest |
$ 7,400 |
|
|
EBT |
$ 48,800 |
|
|
Less: tax |
30%*EBT |
$ 14,640 |
|
Net profit |
NP |
$ 34,160 |
|
Dividend paid |
D |
$ 8,000 |
|
Retained earning |
NP-D |
$ 26,160 |
|
Earnings per share= Net income- preferred dividend/ number of shares |
|
|
here it is assumed that the dividend paid is common stock dividend and not preferred dividend, as it is not specified, so it will not be subtracted |
|
|
here number of share= |
20000 |
|
EPS= |
34160/20000 |
|
$ 1.71 |
|
To calculate the book value per share, we make balance sheet
|
Balance sheet |
|||
|
Liability |
Amount |
Asset |
Amount |
|
shareholders’ Equity |
$ 245,000 |
Fixed asset |
$ 156,000 |
|
(292000-26000-16000-5000) |
investments |
$ 42,000 |
|
|
Debt |
$ 26,000 |
Other asset |
$ 38,000 |
|
Current liability |
$ 16,000 |
cash |
$ 21,000 |
|
other liability |
$ 5,000 |
operating asset |
$ 35,000 |
|
Total |
$ 292,000 |
Total |
$ 292,000 |
|
so book value per share= total equity / number of share |
|
|
Book value per share= |
245000/20000 |
|
$ 12 |
Now, for cash flow per share, it is = operating cash flow /number of shares
Operating cash flow= Net income + depreciation
= 34160+15000= 49160
Cash flow per share= 49160/20000=$2.45
2)
1) The answer to the first question is 11.02%
| Present Value of Investment | 10774.41 |
| Future Value of Investment | 0 |
| Payment per year | -1500 |
| No of years | 15 |
| Interest rate | 11.02% |
Only for calculation purpose in excel we take either of cash inflow or cash outflow as negative.
2) The answer for the second question is 18.58%
| Present Value of Investment | -15000 |
| Future Value of Investment | 0 |
| Payment per year | 4000 |
| No of years | 7 |
| Interest rate | 18.58% |
We should have 4 out of the 5 values mentioned in the table to get the 5th value of the table, it you do not have any value assume it to be 0, which will not be the case in interest rate and no of years.
3)
Price-book ratio = market capitalization/net book value
market capitalization = market price per share*no. of shares outstanding = $55*17,000 = $935,000
net book value = total assets - total liabilities
total assets = cash + other assets + fixed assets + investments + operating assets = $21,000 + $42,000 + $131,000 + $46,000 + $47,000 = $287,000
total liabilities = current liabilities + long-term debt + other liabilities = $20,000 + $22,000 + $5,000 = $47,000
net book value = $287,000 - $47,000 = $240,000
Price-book ratio = $935,000/$240,000 = 3.895 or 3.90
Price-earnings ratio = market capitalization/net earnings
net earnings = (net sales - cost of goods sold - operating expense - depreciation expense - interest expense + investment income)*(1-tax rate) = ($397,000 - $234,000 - $92,000 - $18,000 - $7,400 + $2,600)*(1-0.40) = $48,200*0.60 = $28,920
dividend is paid from net earnings. so it will not be part of above calculation.
Price-earnings ratio = $935,000/$28,920 = 32.33
Price-cash flow ratio = market capitalization/operating cash flow
operating cash flow = net earnings + depreciation = $28,920 + $18,000 = $46,920
Price-cash flow ratio = $935,000/$46,920 = 19.93
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