Question

References Chapter 14 - Accounting Principles ll Section 02 Spring S.. Terus ure McMLASH Favorites SHAMROCK, INC. Income Statement For the Year Ended December 31, 2017 Sales revenue $417,000 223,000 Cost of goods sold Gross profit 194,000 Expenses (including $16,700 interest and $22,900 income taxes) 79,000 Net income $ 115,000 Additional information: 1. Common stock outstanding January 1, 2017, was 29,100 shares, and 39,900 shares were outstanding at December 31, 2017. 2. The market price of Shamrock stock was $14 in 2017. 3. Cash dividends of $25,000 were paid $4.500 of which were to preferred stockholders. Compute the following measures for 2017. (Round all answers to 2 decimal places, s. 1.83 or 2.51%) (a) Earnings per share $ (b) Price-earnings ratio times (c) Payout ratio (d) Times interest earned times e Textbook and Media Assistance

Answer 1

Ans:

a
Earnings per share = (Net income-Preferred dividend)/Average shares outstanding
		=(115000-4500)/(29100+39900)/2=		3.20
b
Price earnings ratio = Price/Earnings per share
		=14/3.20=	4.38
c
Payout ratio = (Cash Dividend-Preferred dividend)/Net income
	=(25000-4500)/115000=		17.83%
d
Times interest earned = Earnings before interest and tax/Interest expense
		=(115000+16700+22900)/16700=		9.26