Five Measures of Solvency or Profitability The balance sheet for Garcon Inc. at
ID: 2391469 • Letter: F
Question
Five Measures of Solvency or Profitability The balance sheet for Garcon Inc. at the end of the current fiscal year Indicated the following Bonds payable, 9% Prefered $5 stock, $100 par Common stock, $13 par Income before income tax was $292,s0o, and income taxes were $44,600, for the current year. Cash dividends paid on common stock during the current year totaled $49,245. The common stock was selling for $70 per share at the end of the year Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requilrements, If required $1,300,00o 268,000 304,850.00 imes Interest earned ratio b. Eanings per share on common stock C. Price-earnings ratio d. Divldends per share of common stock times Dividend yleldExplanation / Answer
Answer to Part a.
Times Interest Earned Ratio = Earnings before Interest and Taxes / Interest Expense
Interest Expense = $1,300,000 * 9% = $117,000
Earnings before Interest and Taxes = Income before Taxes + Interest Expense
Earnings before Interest and Taxes = $292,500 + $117,000
Earnings before Interest and Taxes = $409,500
Times Interest Earned Ratio = 409,500 / 117,000
Times Interest Earned Ratio = 3.5 times
Answer to Part b.
Earnings per Share on Common Stock = (Net Income – Preferred Dividend) / Common Stock Outstanding
Net Income = Income before Income Taxes – Income taxes
Net Income = $292,500 - $44,600
Net Income = $247,900
Preferred Dividend = 268,000/ 100 * $5 = $13,400
Common Stock Outstanding = 304,850 / 13
Common Stock Outstanding = 23,450 Shares
Earnings per Share on Common Stock = (247,900 – 13,400) / 23,450
Earnings per Share on Common Stock = 234,500 / 23,450
Earnings per Share on Common Stock = $10.00
Answer to Part c.
Price Earnings Ratio = Price per Share / Earnings per Share
Price Earnings Ratio = 70 / 10
Price Earnings Ratio = 7
Answer to Part d.
Dividend per Share of Common Stock = Dividend Paid on Common Stock / Common Stock Outstanding
Dividend per Share of Common Stock = 49,245 / 23,450
Dividend per Share of Common Stock = $2.10
Answer to Part e.
Dividend Yield = Common Dividend per Share / Price per Share * 100
Dividend Yield = 2.10 / 70 * 100
Dividend Yield = 3.0%
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