Homework Answers
| Answer a | ||||
| Computation of earnings per share for both firms | ||||
| Sterling | Royal | |||
| Earnings before interest and taxes | $97,600.00 | $97,600.00 | ||
| Less : Interest Expense | $58,560.00 | $19,520.00 | ||
| Earnings before taxes | $39,040.00 | $78,080.00 | ||
| Less : Taxes @ 25% | $9,760.00 | $19,520.00 | ||
| Net Income | $29,280.00 | $58,560.00 | ||
| / Number of common shares | 97600 | 195200 | ||
| Earnings Per share | $0.30 | $0.30 | ||
| Answer b | ||||
| Calculation of stock price | ||||
| P/E ratio i.e.price earning ratio = Market price per share / Earnings per share | ||||
| Hence , Stock price = P/E ratio * EPS | ||||
| Stock price = 21 * $0.30 = $6.30 | ||||
| Answer c | ||||
| Calculation of stock price of Sterling | ||||
| Stock price = P/E ratio * EPS | ||||
| Stock price = 15 * $0.30 = $4.50 | ||||
| Calculation of stock price of Royal | ||||
| Stock price = P/E ratio * EPS | ||||
| Stock price = 24 * $0.30 = $7.20 | ||||
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Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 12% Common stock, $5 par Total Common shares Royal $ 660,000 Debt @ 12% 440,000 Common stock, $5 par $1,100,000 Total 88,000 Common shares $ 220,000 880,000 $1,100,000 176,000 a. Compute earnings per share for both firms. Assume a 25 percent tax rate. (Round...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $113,600. The separate capital structures for Sterling and Royal are shown here Sterling Royal Debt @ 8% Common stock, $5 $ 852.000 Debt @ 8% $ 284,000 1,136,000 $1,420,000 227,200 568,000 Common stock, $5 par Total Common shares $1,420,000 Total 113,600 Common shares a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $136,000. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 10% Common stock, $5 par Total Common shares Royal $ 816,000 Debt @ 10% 544,000 Common stock, $5 par $1,360,000 Total 108,800 Common shares $ 272,000 1,088,000 $1,360,000 217,600 a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $156,000. The separate capital structures for Sterling and Royal are shown here Sterling Royal Debt @ 12% Common stock, $5 pars $ 780,000 Debt @ 12% $ 260,000 520.000 Common stock, $5 par Total Common shares $1,300,000 208,000 $1,300,000 Total 104,000 Common shares a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your...
Stering Optcal anoth make glass frames and each is able to generate earnings before interest and...
Stering Optcal anoth make glass frames and each is able to generate earnings before interest and taxes of $126,000. The separate capital structures for Sterling and Royal are shown here: Stering Royal s 252,000 1,008,000 $1,260,000 201,600 756,000 504,000 Common stock, $5 par Dett@ 10% Debt @ 10% Common stock, $5 par Total Common shares $1,260,000 Total 100,800 Common shares a. Compute eamings per share for both firms. Assume a 20 percent tax rato. (Round your answers to 2 decimal...
$100,000 Common stock, $10 par 200,000 ................................ $300,000 Common shares .................................. 20,000 Total Advanced Problems Sterling...
$100,000 Common stock, $10 par 200,000 ................................ $300,000 Common shares .................................. 20,000 Total Advanced Problems Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate capital structures for Sterling and Royal are shown here: Leverage and stockholder wealth (LO5-4) Sterling Royal Debt @ 12% ......... $ 660,000 Common stock, $5 par ............. 440,000 Total $1,100,000 Common shares ........ 88,000 Debt @ 12%. $ 220,000 Common stock,...
Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements...
Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $50 par value (no change during the year) Preferred $8 stock, $100 par (no change during the year) $11,500,000 3,000,000 The net income was $976,000 and the declared dividends on the common stock were $57,500 for the current year. The market price of the common stock is $27.20 per share. For...
The information below pertains to Sarasota Company for 2021. Net income for the year $1,220,000 7%...
The information below pertains to Sarasota Company for
2021.
Net income for the year
$1,220,000
7% convertible bonds issued
at par ($1,000 per bond); each bond is convertible into
30 shares of common stock
1,990,000
6% convertible, cumulative
preferred stock, $100 par value; each share is convertible
into 3 shares of common stock
3,990,000
Common stock, $10 par
value
6,140,000
Tax rate for 2021
20%
Average market price of
common stock
$25 per share
There were no changes during...
Problem 16-08 The information below pertains to Novak Company for 2021. Net income for the year...
Problem 16-08
The information below pertains to Novak Company for 2021.
Net income for the year
$1,220,000
7% convertible bonds issued at par ($1,000 per bond); each bond
is convertible into
30 shares of common stock
1,990,000
6% convertible, cumulative preferred stock, $100 par value;
each share is convertible
into 3 shares of common stock
3,990,000
Common stock, $10 par value
6,140,000
Tax rate for 2021
20%
Average market price of common stock
$25 per share
There were no...
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,4...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 12% Common stock, $5 par Total Common shares Royal $ 660,000 Debt @ 12% 440,000 Common stock, $5 par $1,100,000 Total 88,000 Common shares $ 220,000 880,000 $1,100,000 176,000 a. Compute earnings per share for both firms. Assume a 25 percent tax rate. (Round...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $113,600. The separate capital structures for Sterling and Royal are shown here Sterling Royal Debt @ 8% Common stock, $5 $ 852.000 Debt @ 8% $ 284,000 1,136,000 $1,420,000 227,200 568,000 Common stock, $5 par Total Common shares $1,420,000 Total 113,600 Common shares a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $136,000. The separate capital structures for Sterling and Royal are shown here: Sterling Debt @ 10% Common stock, $5 par Total Common shares Royal $ 816,000 Debt @ 10% 544,000 Common stock, $5 par $1,360,000 Total 108,800 Common shares $ 272,000 1,088,000 $1,360,000 217,600 a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round...
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $156,000. The separate capital structures for Sterling and Royal are shown here Sterling Royal Debt @ 12% Common stock, $5 pars $ 780,000 Debt @ 12% $ 260,000 520.000 Common stock, $5 par Total Common shares $1,300,000 208,000 $1,300,000 Total 104,000 Common shares a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your...
Stering Optcal anoth make glass frames and each is able to generate earnings before interest and taxes of $126,000. The separate capital structures for Sterling and Royal are shown here: Stering Royal s 252,000 1,008,000 $1,260,000 201,600 756,000 504,000 Common stock, $5 par Dett@ 10% Debt @ 10% Common stock, $5 par Total Common shares $1,260,000 Total 100,800 Common shares a. Compute eamings per share for both firms. Assume a 20 percent tax rato. (Round your answers to 2 decimal...
$100,000 Common stock, $10 par 200,000 ................................ $300,000 Common shares .................................. 20,000 Total Advanced Problems Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate capital structures for Sterling and Royal are shown here: Leverage and stockholder wealth (LO5-4) Sterling Royal Debt @ 12% ......... $ 660,000 Common stock, $5 par ............. 440,000 Total $1,100,000 Common shares ........ 88,000 Debt @ 12%. $ 220,000 Common stock,...
Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $50 par value (no change during the year) Preferred $8 stock, $100 par (no change during the year) $11,500,000 3,000,000 The net income was $976,000 and the declared dividends on the common stock were $57,500 for the current year. The market price of the common stock is $27.20 per share. For...
The information below pertains to Sarasota Company for
2021.
Net income for the year
$1,220,000
7% convertible bonds issued
at par ($1,000 per bond); each bond is convertible into
30 shares of common stock
1,990,000
6% convertible, cumulative
preferred stock, $100 par value; each share is convertible
into 3 shares of common stock
3,990,000
Common stock, $10 par
value
6,140,000
Tax rate for 2021
20%
Average market price of
common stock
$25 per share
There were no changes during...
Problem 16-08
The information below pertains to Novak Company for 2021.
Net income for the year
$1,220,000
7% convertible bonds issued at par ($1,000 per bond); each bond
is convertible into
30 shares of common stock
1,990,000
6% convertible, cumulative preferred stock, $100 par value;
each share is convertible
into 3 shares of common stock
3,990,000
Common stock, $10 par value
6,140,000
Tax rate for 2021
20%
Average market price of common stock
$25 per share
There were no...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
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