CHRISTENSEN, INC. Income Statement For the Year Ended December 31, 2010 Sales $4

Question

CHRISTENSEN, INC.
Income Statement
For the Year Ended December 31, 2010
Sales $400,000
Cost of goods sold 230,000
Gross profit 170,000
Expenses (including $16,000 interest and $24,000 income taxes) 105,000
Net income $65,000

Additional information:

The weighted average common shares outstanding in 2010 were 30,000 shares.

The market price of Christensen, Inc. stock was $13 in 2010.

Cash dividends of $26,000 were paid, $5,000 of which were to preferred stockholders.


(a) Earnings per share
(b) Price-earnings
(c) Payout
(d) Times interest earned

Explanation / Answer

a) Earning per share = [Net income -prefered dividend ] / number of weigted avg common shares = [65000- 5000 ] / 30000 =$2 b) Price earnings = MPS / EPS = 13/ 2 = 6 times c) pay out =cash dividends / [Net income -prefered dividend ] = $26000 / $60000 =43..33% d) Times interest earned = EBIT / Interest expense EBIT = Gross profit - interest -tax = 170000- 16000-24000] =$130000 there fore Times interest earned = $130000 / 16000 =8.13 times..

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