Question

Oriole Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.

Oriole Medical Comparative Balance Sheet As of December 31
		2016		2015
Assets
Current assets
Cash		$308,000		$417,450
Accounts receivable, net		1,065,800		776,450
Inventory		726,000		681,050
Other current assets		382,000		247,050
Total current assets		2,481,800		2,122,000
Property, plant, & equipment, net		9,987,505		8,418,295
Total assets		$12,469,305		$10,540,295
Liabilities and Stockholders’ Equity
Current liabilities		$3,164,000		$2,846,000
Long-term debt		3,702,600		3,892,700
Total liabilities		6,866,600		6,738,700
Preferred stock, $5 par value		50,600		50,600
Common stock, $0.25 par value		179,000		103,900
Retained earnings		5,373,105		3,647,095
Total stockholders’ equity		5,602,705		3,801,595
Total liabilities and stockholders’ equity		$12,469,305		$10,540,295

Oriole Medical Comparative Income Statement and Statement of Retained Earnings For the Year
		2016		2015
Sales revenue (all on account)		$10,450,000		$9,614,000
Cost of goods sold		4,168,000		5,298,800
Gross profit		6,282,000		4,315,200
Operating expenses		2,840,200		2,634,150
Net operating income		3,441,800		1,681,050
Interest expense		351,000		308,700
Net income before taxes		3,090,800		1,372,350
Income taxes (30%)		927,240		411,705
Net income		$2,163,560		$960,645
Dividends paid
Preferred dividends		29,550		29,550
Common dividends		408,000		460,000
Total dividends paid		437,550		489,550
Net income retained		1,726,010		471,095
Retained earnings, beginning of year		3,647,095		3,176,000
Retained earnings, end of year		$5,373,105		$3,647,095

(a)Correct answer

Calculate the earnings per share (average of 412,000 shares outstanding for the year) for 2016. (Round answer to 2 decimal places, e.g. 2.55.)

Earning per share

$Enter the Earning per share in dollars  per share

(b)Calculate the price/earnings ratio (market price of $45 at year-end) for 2016. (Round answer to 2 decimal places, e.g. 2.55.)

Price/earnings ratio

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Part 1) Earning per share = (Net income - preferrence dividend) / average equity shares = (2163560-29550)/412000 = $5.18 Thus the correct answer is $5.18 Part 2) Price earning ratio = Market price / earning per share = 45/5.18 = 8.69 Times Thus the correct answer is 8.69 Times