AE14-9 The income statement for Christensen, Inc., appears below. CHRISTENSEN, I
ID: 2348643 • Letter: A
Question
AE14-9The income statement for Christensen, Inc., appears below.
CHRISTENSEN, INC.
Income Statement
For the Year Ended December 31, 2011
Sales $395,300
Cost of goods sold 230,300
Gross profit 165,000
Expenses (including $15,000 interest and $23,530 income taxes) 106,800
Net income $58,200
Additional information:
The weighted average common shares outstanding in 2011 were 29,000 shares.
The market price of Christensen, Inc. stock was $14 in 2011.
Cash dividends of $29,800 were paid, $4,970 of which were to preferred stockholders.
Compute the following ratios for 2011.
(a) Earnings per share. (Round answer to 2 decimal places, e.g. 10.50 and use the rounded the amount for future calculations.)
(b) Price-earnings. (Round answer to 1 decimal place, e.g. 10.5.)
(c) Payout. (Round answer to 0 decimal places, e.g. 25%.)
(d) Times interest earned. (Round answer to 1 decimal place, e.g. 10.5.)
(a) Earnings per share $
(b) Price-earnings times
(c) Payout %
(d) Times interest earned times
Explanation / Answer
a) EPS : Net profit available to shareholders/ Number of common shares outstanding
Net Income available is $58,200 – 4,970 pref dividend = $53,230
EPS = 53,230/29000 = 1.84 / share
b) Price Earnings : Market Price per share / EPS
Price Earnings = 14 / 1.84 = 7.61
c) Payout % : Total dividend to equity shareholders(cash dividend)/net profit available to shareholders.
Payout = ( total dividend 29,800 – 4,970 pref. cash dividend) /53,230= 46.64%
d) Times Interest earned times : EBIT / Int.
Times interest earned times = EBIT ( which is Net Income 58,200 + Interest 15000 + 23,530 tax)
= 96,730 / 15,000 = 6.448 times
(a) Earnings per share = $ 1.84
(b) Price-earnings = 7.6 times
(c) Payout = 47%
(d) Times interest earned = 6.4 times
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