Please answer question 2 in its entirety. I have already used another question for number 1. Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 110,000 $ 250,000 Marketable securities 0 28,000 Accounts receivable, net 607,000 400,000 Inventory 1,045,000 695,000 Prepaid expenses 30,000 32,000 Total current assets 1,792,000 1,405,000 Plant and equipment, net 1,946,400 1,470,000 Total assets $ 3,738,400 $ 2,875,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 850,000 $ 400,000 Bonds payable, 12% 750,000 750,000 Total liabilities 1,600,000 1,150,000 Stockholders' equity: Common stock, $20 par 790,000 790,000 Retained earnings 1,348,400 935,000 Total stockholders’ equity 2,138,400 1,725,000 Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,500,000 $ 4,650,000 Cost of goods sold 3,975,000 3,550,000 Gross margin 1,525,000 1,100,000 Selling and administrative expenses 673,000 568,000 Net operating income 852,000 532,000 Interest expense 90,000 90,000 Net income before taxes 762,000 442,000 Income taxes (30%) 228,600 132,600 Net income 533,400 309,400 Common dividends 120,000 99,000 Net income retained 413,400 210,400 Beginning retained earnings 935,000 724,600 Ending retained earnings $ 1,348,400 $ 935,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. Assume Paul Sabin has asked you to assess his company’s profitability and stock market performance. Required: 1. You decide first to assess the company’s stock market performance. For both this year and last year, compute: a. The earnings per share. There has been no change in common stock over the last two years. b. The dividend yield ratio. The company’s stock is currently selling for $60 per share; last year it sold for $50 per share. c. The dividend payout ratio. d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 7) e. The book value per share of common stock. 2. You decide next to assess the company’s profitability. Compute the following for both this year and last year: a. The gross margin percentage. b. The net profit margin percentage. c. The return on total assets. (Total assets at the beginning of last year were $2,670,000.) d. The return on equity. (Stockholders’ equity at the beginning of last year was $1,715,000.) e. Is the company’s financial leverage positive or negative?

Please answer question 2 in its entirety. I have already used another question for number 1. Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 110,000 $ 250,000 Marketable securities 0 28,000 Accounts receivable, net 607,000 400,000 Inventory 1,045,000 695,000 Prepaid expenses 30,000 32,000 Total current assets 1,792,000 1,405,000 Plant and equipment, net 1,946,400 1,470,000 Total assets $ 3,738,400 $ 2,875,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 850,000 $ 400,000 Bonds payable, 12% 750,000 750,000 Total liabilities 1,600,000 1,150,000 Stockholders' equity: Common stock, $20 par 790,000 790,000 Retained earnings 1,348,400 935,000 Total stockholders’ equity 2,138,400 1,725,000 Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,500,000 $ 4,650,000 Cost of goods sold 3,975,000 3,550,000 Gross margin 1,525,000 1,100,000 Selling and administrative expenses 673,000 568,000 Net operating income 852,000 532,000 Interest expense 90,000 90,000 Net income before taxes 762,000 442,000 Income taxes (30%) 228,600 132,600 Net income 533,400 309,400 Common dividends 120,000 99,000 Net income retained 413,400 210,400 Beginning retained earnings 935,000 724,600 Ending retained earnings $ 1,348,400 $ 935,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. Assume Paul Sabin has asked you to assess his company’s profitability and stock market performance. Required: 1. You decide first to assess the company’s stock market performance. For both this year and last year, compute: a. The earnings per share. There has been no change in common stock over the last two years. b. The dividend yield ratio. The company’s stock is currently selling for $60 per share; last year it sold for $50 per share. c. The dividend payout ratio. d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 7) e. The book value per share of common stock. 2. You decide next to assess the company’s profitability. Compute the following for both this year and last year: a. The gross margin percentage. b. The net profit margin percentage. c. The return on total assets. (Total assets at the beginning of last year were $2,670,000.) d. The return on equity. (Stockholders’ equity at the beginning of last year was $1,715,000.) e. Is the company’s financial leverage positive or negative?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Please answer question 2 in its entirety. I have already used another question for number 1.

Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:

	This Year	Last Year
Sabin Electronics
Comparative Balance Sheet
Assets
Current assets:
Cash	$ 110,000	$ 250,000
Marketable securities	0	28,000
Accounts receivable, net	607,000	400,000
Inventory	1,045,000	695,000
Prepaid expenses	30,000	32,000
Total current assets	1,792,000	1,405,000
Plant and equipment, net	1,946,400	1,470,000
Total assets	$ 3,738,400	$ 2,875,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$ 850,000	$ 400,000
Bonds payable, 12%	750,000	750,000
Total liabilities	1,600,000	1,150,000
Stockholders' equity:
Common stock, $20 par	790,000	790,000
Retained earnings	1,348,400	935,000
Total stockholders’ equity	2,138,400	1,725,000
Total liabilities and stockholders' equity	$ 3,738,400	$ 2,875,000

	This Year	Last Year
Sabin Electronics
Comparative Income Statement and Reconciliation
Sales	$ 5,500,000	$ 4,650,000
Cost of goods sold	3,975,000	3,550,000
Gross margin	1,525,000	1,100,000
Selling and administrative expenses	673,000	568,000
Net operating income	852,000	532,000
Interest expense	90,000	90,000
Net income before taxes	762,000	442,000
Income taxes (30%)	228,600	132,600
Net income	533,400	309,400
Common dividends	120,000	99,000
Net income retained	413,400	210,400
Beginning retained earnings	935,000	724,600
Ending retained earnings	$ 1,348,400	$ 935,000

During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account.

Assume Paul Sabin has asked you to assess his company’s profitability and stock market performance.

Required:

1. You decide first to assess the company’s stock market performance. For both this year and last year, compute:

a. The earnings per share. There has been no change in common stock over the last two years.

b. The dividend yield ratio. The company’s stock is currently selling for $60 per share; last year it sold for $50 per share.

c. The dividend payout ratio.

d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 7)

e. The book value per share of common stock.

2. You decide next to assess the company’s profitability. Compute the following for both this year and last year:

a. The gross margin percentage.

b. The net profit margin percentage.

c. The return on total assets. (Total assets at the beginning of last year were $2,670,000.)

d. The return on equity. (Stockholders’ equity at the beginning of last year was $1,715,000.)

e. Is the company’s financial leverage positive or negative?

Complete this question by entering your answers in the tabs below.
Required 1 Required 2
You decide next to assess the company's profitability. Compute the following for both this year and last year:
a. The gross margin percentage. (Round your percentage answers to 1 decimal place.)
b. The net profit margin percentage. (Round your percentage answers to 1 decimal place.)
c. The return on total assets. (Total assets at the beginning of last year were $2,670,000.) (Round your percentage answers
to 1 decimal place.)
d. The return on equity. (Stockholders' equity at the beginning of last year was $1,715,000.) (Round your percentage answers
to 1 decimal place.)
e. Is the company's financial leverage positive or negative?
a. Gross margin percentage
b. Net profit margin percentage
c. Return on total assets
d. Return on equity
e. Financial Leverage
This Year
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Last Year
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