Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Cecilia Company reported net income of $1,250,000. The average total liabilities
were $4,302,500 and average total stockholders' equity was $5,205,000. Interest
expense was $100,500 and the tax rate was 40%. Cecilia's return on assets ratio is
closest to:
13.8%
13.1%
12.1%
14.2%
Sales for J. P. Hulett Inc. during the past year amounted to
$4.3
million. Gross profits totaled
$1.06
million, and operating and depreciation expenses were
$493,000
and
$357,000,
respectively. Dividend income for the year was
$11,000,
which was paid by a firm in which Hulett owns
85
percent of the shares. Use the corporate tax rates shown in the popup window,
Taxable Income
Marginal Tax Rate
$0−$50,000
15%
$50,001−$75,000
25%
$75,001−$100,000
34%
$100,001−$335,000
39%
$335,001−$10,000,000
34%
$10,000,001−$15,000,000
35%
$15,000,001−$18,333,333
38%
Over $18,333,333
35%
to Comcute the corporation's tax liability. What are thefirm's average and marginal tax rates?
Lake Incorporated and River Incorporated reported net incomes of $275,000 and $231,000, respectively, for the most recent fiscal
year. Both companies had 55,000 shares of common stock issued and outstanding. The market price per share of Lake's stock was
$58, while River's sold for $62 per share.
Required
a. Determine the P/E ratio for each company.
b. Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in
income?
Complete this question by entering your answers in the tabs below.
Required A Required B
Determine the P/E ratio for each company.
Note: Do not round intermediate calculations. Round your answers to the nearest whole number.
Company
Lake, Incorporated
River, Incorporated
P/E Ratio
Chapter 4 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 4 - Common-Size Analysis. Common-size analysis is a...Ch. 4 - Earnings per Share. Firm A reports an increase in...Ch. 4 - Prob. 3QECh. 4 - Profit Margin for ROA versus ROCE. Describe the...Ch. 4 - Concept and Measurement of Financial Leverage....Ch. 4 - Advantages of Financial Leverage. A company...Ch. 4 - Prob. 7QECh. 4 - Nucor, a steel manufacturer, reported net income...Ch. 4 - Phillips-Van Heusen, an apparel manufacturer,...Ch. 4 - TJX, Inc., an apparel retailer, reported net...
Ch. 4 - Boston Scientific, a medical device manufacturer,...Ch. 4 - Valero Energy, a petroleum company, reported net...Ch. 4 - Exhibit 4.22 presents selected operating data for...Ch. 4 - Microsoft Corporation (Microsoft) and Oracle...Ch. 4 - Prob. 17PCCh. 4 - Prob. 18PCCh. 4 - Texas Instruments (TI) designs and manufactures...Ch. 4 - JCPenney operates a chain of retail department...Ch. 4 - Prob. 21PCCh. 4 - Selected data for General Mills for 2007, 2008,...Ch. 4 - Prob. 23PCCh. 4 - Hasbro is a leading firm in the toy, game, and...Ch. 4 - Fitch sells casual apparel and personal care...Ch. 4 - Prob. 26PCCh. 4 - Starwood Hotels (Starwood) owns and operates many...Ch. 4 - Select data for Avis and Hertz for 2012 follow....Ch. 4 - Integrative Case 1.1 introduced the industry...Ch. 4 - Prob. 1ABICCh. 4 - Prob. 1ACICCh. 4 - Prob. 1BAICCh. 4 - Prob. 1BBICCh. 4 - Walmart and Carrefour follow similar strategies....Ch. 4 - Walmart and Carrefour follow similar strategies....
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- Juroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Refer to the information for Juroe Company on the previous page. Also, assume that Juroes total assets at the beginning of last year equaled 17,350,000 and that the tax rate applicable to Juroe is 40%. Required: Note: Round answers to two decimal places. 1. Calculate the average total assets. 2. Calculate the return on assets.arrow_forwardThe following information relates to the operations of Branded Ltd. The net profit after tax was $1,000,000. The company distributed ordinary dividends of $600,000 to its shareholders. Over the year, weighted average number of ordinary shares were 2,000,000. Ordinary shares are currently selling for $8.00 per share. What is the earning per share for the company? 0.20. 0.33. 0.40. 0.50.arrow_forwardBoston Scientific, a medical device manufacturer, reported net income (amounts in millions) of $5,062 on sales of $9,624 during Year4. Interest expense totaled $164. The income tax rate was 35 percent. Average total assets were $66,934.5, and average common shareholders’ equity was $3,443.5. The firm did not have preferred stock outstanding or minority interest in its equity.a. Compute the rate of ROA. Disaggregate ROA into profit margin for ROA and assets turnover components.b. Compute the rate of ROCE. Disaggregate ROCE into profit margin for ROCE, assets turnover, and capital structure leverage ratio components.c. Calculate the amount of net income to common shareholders derived from the excess return on creditors’ capital and the amount from the return on common shareholders’ capitaarrow_forward
- For the most recent year, Camargo, Incorporated, had sales of $566,000, cost of goods sold of $248,960, depreciation expense of $64,400, and additions to retained earnings of $76,800. The firm currently has 24,000 shares of common stock outstanding and the previous year's dividends per share were $1.50. Assuming a 23 percent income tax rate, what was the times interest earned ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Times interest earned timesarrow_forwardA & E Holdings' profit and loss statement showed a net income of 934% of revenue or $29,250. Twenty percent of net income was paid in corporation tax and 75% of the net income after-tax was paid out as dividends to Alice and Emile, who share in the ratio 5 to 3. (a) What was the revenue of A & E Holdings? (b) How much was the after-tax income? (c) How much was paid out in dividends? (d) What percent of net income did Alice receive as a dividend?arrow_forwardC Company had the following data for the last year (dollars in thousands): Net income = $700; EBIT = $1,200; Total assets = $3,500; and Total operating capital = $2,100. Information for the current year is as follows: Net income = $800; EBIT = $1,555; Total assets = $3,800; and Total operating capital = $2,500. The company's federal and state tax rate is 35%. How much free cash flow did the firm generate during the current year? Round your answer to the nearest dollar. (Hint: FCF = NOPAT - Net Investment in Operating Capital) Group of answer choices: $605 $617 $611 $608 $614arrow_forward
- Moore Corporation has earned $205,500 after tax. The return on equity for Moore Corporation is 18%. What is Moore's stockholders' equity? (format as $1,234.56)arrow_forward(Corporate income tax) Sales for J. P. Hulett Inc. during the past year amounted to $3.5 million. Gross profits totaled $1.01 million, and operating and depreciation expenses were $494,000 and $347,000, respectively. Dividend income for the year was $13,000, which was paid by a firm in which Hulett owns 85 percent of the shares. Use the corporate tax rates shown in the popup window, to Comcute the corporation's tax liability. What are the firm's average and marginal tax rates? The firm's tax liability for the year is $. (Round to the nearest dollar.) The firm's average tax rate is%. (Round to two decimal places.) The firm's marginal tax rate is %. (Round to the nearest integer.) 3 E D C 80 $ 4 R F DOD 000 F4 V % 5 T FS B A 6 Y MacBook Air F6 H & 7 N Data table Marginal Tax Rate 15% 25% 34% 39% $335,001-$10,000,000 34% $10,000,001-$15,000,000 35% $15,000,001-$18,333,333 38% Over $18,333,333 35% (Click on the icon in order to copy its contents into a spreadsheet.) 44 F7 D J * 8 Taxable…arrow_forward(Corporate income tax) Sales for J. P. Hulett Inc. during the past year amounted to $4.4 million. Gross profits totaled $1.01 million, and operating and depreciation expenses were $502,000 and $345,000, respectively. Dividend income for the year was $11,000, which was paid by a firm in which Hulett owns 85 percent of the shares. Use the corporate tax rates shown in the popup window, E, to Comcute the corporation's tax liability. What are the firm's average and marginal tax rates? The firm's tax liability for the year is $. (Round to the nearest dollar.) Data table Taxable Income $0-$50,000 $50,001 - $75,000 $75,001 - $100,000 $100,001 - $335,000 $335,001 - $10,000,000 Marginal Tax Rate 15% 25% 34% 39% 34% 35% 38% $10,000,001 - $15,000,000 $15,000,001 - $18,333,333 Over $18,333,333 35% (Click on the icon in order to copy its contents into a spreadsheet.) Xarrow_forward
- Edna Recording Studios, Inc., reported earnings available to common stock of $4,000,000 last year. From those earnings, the company paid a dividend of $1.17 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. It is taxed at a rate of 21%. a. If the market price of the common stock is $39 and dividends are expected to grow at a rate of 6% per year for the foreseeable future, what is the company's cost of retained earnings financing? b. If underpricing and flotation costs on new shares of common stock amount to $9 per share, what is the company's cost of new common stock financing? c. The company can issue $2.12 dividend preferred stock for a market price of $35 per share. Flotation costs would amount to $5 per share. What is the cost of preferred stock financing?arrow_forwardBarnes' Brothers has the following data for the year ending 12/31/12: Net income = $550; Net operating profit after taxes (NOPAT) = $650; Total assets = $2,700; Short-term investments = $100; Stockholders' equity = $2,000; Total debt = $750; and Total operating capital = $2,300. Barnes' weighted average cost of capital is 11%. What is its economic value added (EVA)? Group of answer choices $357.30 $317.60 $397.00 $436.70 $277.90arrow_forwardTibbs Inc. had the following data for the year ending 12/31/12: Net income = $400; Net operating profit after taxes (NOPAT) = $450; Total assets = $2,600; Short-term investments = $200; Stockholders' equity = $1,600; Total debt = $1,000; and Total operating capital = $2,200. What was its return on invested capital (ROIC)? Group of answer choices 14.32% 22.50% 16.36% 20.45% 18.41%arrow_forward
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