Last year, the Allen Corporation had sales of $12.3 million with the cost of goods sold of $3,750,000. The firm's operating expenses were $2,660,000, and its increase in retained earnings was $525,000. There are currently 100,000 common stock shares outstanding and the firm pays a $2.20 dividend per share. The firm had $11 million in assets of which half was in current assets. Also, the debt ratio (Debt/Assets) was 35%. It is known that 40% of the company debt was in current liabilities. Compute the firm s operating profit margin.

Last year, the Allen Corporation had sales of $12.3 million with the cost of goods sold of $3,750,000. The firm's operating expenses were $2,660,000, and its increase in retained earnings was $525,000. There are currently 100,000 common stock shares outstanding and the firm pays a $2.20 dividend per share. The firm had $11 million in assets of which half was in current assets. Also, the debt ratio (Debt/Assets) was 35%. It is known that 40% of the company debt was in current liabilities. Compute the firm s operating profit margin.

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Description: Last year, the Allen Corporation had sales of $12.3 million with the cost of goods sold of $3,750,000. The firm's operating expenses were $2,660,000, and its increase in retained earnings was $525,000. There are currently 100,000 common stock shares

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section2.A: Taxes

Problem 8P

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Concept explainers

Dividend Valuation

Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.

Dividend Discount Model

Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.

Capital Gains Yield

It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.

Stock Valuation

In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.

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Compute the firm s operating profit margin.

Definition Definition Remaining net income of the company after the required dividends are paid to shareholders. This surplus money is usually invested back into the business to expand its business operations or launch a new product.

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