Buy Now s 112 $ 164S 119 $ 173 1,3551,381 2.25 2.99 Total stockholders equity 1,
ID: 2431314 • Letter: B
Question
Buy Now s 112 $ 164S 119 $ 173 1,3551,381 2.25 2.99 Total stockholders equity 1,103 1,174 2.19 1.50 Stock price when annual results reported 23.82 28.77 26.72 34.53 Required: 1-a. Compute the 2016 ROE for each company. Express ROE as o percentage. TIP: Remember that the bottom of the ROE ratio uses the average stockholders equity 1-b. Which company appears to generate greater returns on stockholders equity in 2016? 2-a. Compute the 2016 P/E ratio for each company 2-b. Which company do investors appear to value more? Complete this question by entering your answers in the tabs below. Reg 18 Reg 2ARea 2B Req ?A ber that the bottom of the ROE ratio Compute the 2016 ROE for each company. Express ROE as a percentage. TIP ders' equity. (Do not round your intermediate calculations. Round your answers to 1 decimal place.) ere to seardExplanation / Answer
1-a) Calculation of the Return on Equity
Formula :
Return on Equity = Net Income divided by Average Stockholders Equity
$119
($1103+$1174)/2
=$1139
($1355+$1301)/2
=$1328
($112/$1139)*100
=9.83%
($119/$1328)*100
=8.96%
1-b) Buy Now Company appears to generate greater returns on stockholders's equity in 2016.
2-a) Computation of 2016 P/E ratio for each company
P/E = Share Price divided by Earnings per share
Buy Now: $23.82/$1.5 = 15.88
Gerald's EZ Furniture : $26.72/$2.25 = 11.87
2-b)Investors appear to value Buy Now more because they are willing to pay 15.88 times earnings to acquire one of its shares, but only 11.87 times earnings for one share of Gerald's EZ Furniture.
Particulars Buy Now Gerald's EZ Furniture Net Income $112$119
Average Stockholders' Equity($1103+$1174)/2
=$1139
($1355+$1301)/2
=$1328
Return on Equity($112/$1139)*100
=9.83%
($119/$1328)*100
=8.96%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.