1. The following amounts were taken from the financial statements of Plant Compa
ID: 2359612 • Letter: 1
Question
1. The following amounts were taken from the financial statements of Plant Company: 2012 Total assets $1,000,000, Net asles $650,000,Gross profit 320,000, Net Income 117,000, Weighted average number of common shares outstanding 90,000, Market price of common stock 39. 2013 Total assets $800,000 Net sales 840,000 Gross profit 352,000 Net Income 155,000, Weighted average number of common shares outstanding 90,000, Market price of common stock 35. The profit margin ratio for 2013 is A. 19.4% B. 44.1% C. 18.5% D. 10.7%. 2. The following amounts were taken from the financial statements of Plant Company: 2012 Total assets $1,000,000, Net asles $650,000,Gross profit 320,000, Net Income 117,000, Weighted average number of common shares outstanding 90,000, Market price of common stock 39. 2013 Total assets $800,000 Net sales 720,000 Gross profit 352,000 Net Income 150,000, Weighted average number of common shares outstanding 60,000, Market price of common stock 67.50. The price-earning ratio for 2013 is A. 27 times B. 45 times C. 11 times D. 2.5 times. 3. Star Corporation had net income of 300,000 and paid dividends to common stockholders of 40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation's common stock is selling for 36 per share on the New York Exchange. Star Corporation's price-earning ratio is A. 5.2 times B. 6 times C. 18 times D. 6.9 times 4. Star Corporation had net income of 320,000 and paid dividends to common stockholders of 80,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation's common stock is selling for 30 per share on the New York Exchange. Star Corporation's payout for 2013 is A. 16% B. 25% C. 9% D. $4 Per share.Explanation / Answer
Profit margin is found by taking net income/net sales. For 2013 we take 155,000/840,000 to get a percentage of 18.45%, so the answer is C. 18.5%. This next question is about finding the price earnings ratio. This ratio is found by taking the market price per share/earnings per share. So, first, we are already given the market price per share which is 67.50. Next, to find the earnings per share we take our earnings, or net income, and divide it by the number of shares outstanding. So we take 150,000/60,000 to get $2.5 per share. Thus, we get 67.50/2.5=27 times, the answer is A. Once again we are finding the price earning ratio. So you know that the market price per share is now $36. And to find the earnings per share we take net income of 300,000/50,000=6. Thus our price-earnings ratio is 6 times answer B. They tried to trip you up with this problem by insinuating the paid dividends influence net income, they do not. Remember that dividends goes on the statement of retained earnings and after taking beg. retained earnings+net income you subtract out dividends to get ending net income, however, this has not effect on the actual value of the net income and therefore does not affect the problem. Payout refers to the amount of cash received from your investment. In this case we take the dividends/net income, to see how much of the earnings the company paid out to its investors. In this case, we get 80000/320000=25% answer B. Hope this helped and please rate, doing answers for no rating sucks.
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