Question

5. Botox Facial Care had earnings after taxes of $284,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $45.80. In 20X2, earnings after taxes increased to $350,000 with the same 200,000 shares outstanding. The stock price was $56.00.

a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.)(Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

c. Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)
  

6. Stilley Corporation had earnings after taxes of $445,000 in 20X2 with 250,000 shares outstanding. The stock price was $44.10. In 20X3, earnings after taxes declined to $255,000 with the same 250,000 shares outstanding. The stock price declined to $30.30.

a. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

b. Compute earnings per share and the P/E ratio for 20X3. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

7. The Rogers Corporation has a gross profit of $798,000 and $300,000 in depreciation expense. The Evans Corporation also has $798,000 in gross profit, with $45,900 in depreciation expense. Selling and administrative expense is $216,000 for each company.  

a. Given that the tax rate is 40 percent, compute the cash flow for both companies.
  

   

b. Calculate the difference in cash flow between the two firms.
  

  

Answer 1

5)

As we know:

EPS = Earnings/No of shares

PE ratio=Price/EPS

	20X1				20X2
Earnings	$ 284,000.00			Earnings	$ 350,000.00
Stock Price	$            45.80			Stock Price	$            56.00
Shares outstanding	200000			Shares outstanding	200000
Answer: a				Answer: b
EPS	$               1.42	(284000/200000)		EPS	$               1.75	(350000/200000)
PE ratio	32.25	(45.80/1.42)		PE ratio	32.00	(56/1.75)

c) PE ratio decreased slightly because although the EPS increased, the rise in stock price was higher.

6)

	20X2				20X3
Earnings	$ 445,000.00			Earnings	$ 255,000.00
Stock Price	$            44.10			Stock Price	$            30.30
Shares outstanding	250000			Shares outstanding	250000
EPS	$               1.78			EPS	$               1.02
PE ratio	24.78			PE ratio	29.71