1. Approximately, what is the premium investors have paid (total dollar amount a
ID: 2567840 • Letter: 1
Question
1. Approximately, what is the premium investors have paid (total dollar amount and per share) to purchase the ZEBRA’ common stock?
2. Suppose that ZEBRA decided to pay $50,000 of its 2016 earnings in dividends to shareholders. Calculate ZEBRA’ current dividend payout ratio and the retained earnings ratio.
3. What is the proportion ZEBRA’ long-term debt as a percentage of total assets (Debt ratio) as of the end of 2016? If the industry’s median debt ratio was 30 percent, what would be your assessment of ZEBRA’s debt ratio?
4. What is the book value of fixed assets as of the end of 2016?
5. Assuming that ZEBRA’ shares were trading at $5, what is the Enterprise Value of ZEBRA as of the end of 2016? [Hint: you would need to determine the number of shares outstanding.]
6. Assuming that ZEBRA’ shares were trading at $5, what is the ZEBRA market-to-book value as of the end of 2016? Would you consider ZEBRA’ stocks as value stocks or glamour stocks? Why?
7. What is ZEBRA’ earnings per share in 2016?
ZEBRA CORPORATION Income Statement Gross Sales Returns and allowances Net Profit Cost of goods sold Gross Profit Advertising expense lease payment Depreciation Management salary expense Repairs and maintence costs R&D; expense Operating Income Other Income Earnings Before Interest and Taxes Interest expense Pretax Income Taxes 3,210,000 -48,000 3,162,000 2,433,000 729,000 78,000 -52,000 -78,000 240,000 22,000 -35,000 224,000 224,000 -64,000 160,000 -51,000 109,000 Net IncomeExplanation / Answer
1. Premium paid to purchase a stock is the excess amount paid over its par value. In a balance sheet, this premium is recorded as “Additional paid in capital “. So, to calculate premium paid per stock, we would need to divide “Additional paid in capital” by number of shares issued.
Total number of shares issued would be calculated by dividing total amount of Common stock at par by par value per share.
Total number of shares issued = $60,000 / $0.50 = 120,000
Additional paid in capital (Total Premium paid) = $71,600
Premium paid per share = $71,600/120,000 = $0.5966 or $0.60
2. Dividend payout ratio = Total Dividends / Net Income
=> 50,000/109,000 = 0.4587 or 45.87%
Retained Earnings Ratio = 1- Dividend payout ratio
=> 1 – 0.4587 = 0.5413 or 54.13%
3. Debt ratio = Long-term debt / Total Assets
=> 134,300/462,510 = 0.2904 or 29.04%
Since the ratio for ZEBRA is a bit lower than industry, it is in a bit stronger position as debt ratio measures the leverage of a company. A lower ratio means that the company has lower level of debt in its capital structure that makes it lesser risky.
4. Book value of fixed assets refers to the value that is recorded in the balance sheet. So, the book value of fixed assets of ZEBRA is 202,640.
5. Enterprise value = Market capitalization of company + Net Debt – Cash & cash equivalents
Market Capitalization = Market price per share x Number of shares
=> $5 x 120,000 = $600,000
Net Debt = Long-term debt + Short-term debt
=> $134,300 + $4,080 = $138,380
Cash & Equivalents = $17,600
Enterprise Value = $600,000 + $138,380 - $17,600 = $720,780
6. Market-to-Book-Value = Market price per share / Book value per share
Book Value per share = (Total Shareholders’ equity – Preferred Stock) / Number of shares
=> (228,880 – 8,000) / 120,000 = $1.84
Market-to-Book-Value = $5 / $1.84 = $2.72
7. Earnings per share = Net Income / Number of shares
=> $109,000/120,000 = $0.9083
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