Presented here are summarized data from the balance sheets and income statements

Question

Presented here are summarized data from the balance sheets and income statements of Wiper, Inc.:

a. Calculate return on investment, based on net income and average total assets, for 2017 and 2016. (Do not round intermediate calculations. Round your answers to 1 decimal place.)

b. Calculate return on equity for 2017 and 2016. (Round your answers to 1 decimal place.)

c. Calculate working capital and the current ratio for each of the past three years. (Enter your answers in millions (i.e., 5,000,000 should be entered as 5). Round "Current ratio" to 1 decimal place.)

d. Calculate earnings per share for 2017 and 2016. (Round your answers to 2 decimal places.)

e. If Wiper's stock had a price/earnings ratio of 10 at the end of 2017, what was the market price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

f. Calculate the cash dividend per share for 2017 and the dividend yield based on the market price calculated in part e. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

g. Calculate the dividend payout ratio for 2017. (Do not round intermediate calculations.)

h. Assume that accounts receivable at December 31, 2017, totaled $322 million. Calculate the number of days' sales in receivables at that date. (Use 365 days a year. Do not round intermediate calculations.)

i. Calculate Wiper's debt ratio and debt/equity ratio at December 31, 2017 and 2016. (Round "Debt ratio" to 1 decimal place and "Debt/equity ratio" to the nearest whole percent.)

j. Calculate the times interest earned ratio for 2017 and 2016. (Round your answers to 1 decimal place.)

WIPER, INC. Condensed Balance Sheets December 31, 2017, 2016, 2015 (in millions) 2017 2016 2015 Current assets $ 781 $ 1,001 $ 863 Other assets 2,426 1,933 1,732 Total assets $ 3,207 $ 2,934 $ 2,595 Current liabilities $ 590 $ 843 $ 736 Long-term liabilities 1,597 1,052 928 Stockholders’ equity 1,020 1,039 931 Total liabilities and stockholders' equity $ 3,207 $ 2,934 $ 2,595

Explanation / Answer

a. Return on investment=Net income/Average total assets 2017 2016 1) Net income 230 225 2) Beginning total assets 2934 2595 3) Ending total assets 3207 2934 4) Average total assets [(2)+(3)]/2 3070.5 2764.5 5) Return on investment [(1)/(4)] 7.49% 8.14% b. Return on equity=Net income/Average stockholder's equity 2017 2016 1) Net income 230 225 2) Beginning stockholder's equity 1039 931 3) Ending stockholder's equity 1020 1039 4) Average stockholder's equity [(2)+(3)]/2 1029.5 985 5) Return on investment [(1)/(4)] 22.34% 22.84% c. Working capital=Current assets-Current liabilities Current ratio=Current assets/Current liabilities 2017 2016 2015 1) Current assets 781 1001 863 2) Current liabilities 590 843 736 3) Working capital (1-2) 191 158 127 4) Current ratio (1/2) 1.32 1.19 1.17 d. Earnings per share=Net income/Average number of common shares outstanding 2017 2016 1) Net income 230 225 2) Average number of common shares outstanding 42.6 48 3) Earnings per share (1)/(2) 5.40 4.69 e. Market price of the stock=price earning ratio*earnings per share=10*5.40=$54 f. Dividend per share=Total dividens paid/Average number of common shares outstanding=63/42.6=$1.48 per share Dividend yield=Dividend per share/Market price of the stock=(1.48/54)*100=2.74% g. Dividend payout ratio=Total dividends paid/Net income=63/230=0.27 h. Number of days sales in receivables=Average accounts receivable/Average daily sales on account Average daily sales on account=Sales/365=3063/365=8.39 Number of days sales in receivables=322/8.39=38.38 days i. Debt ratio=Total liabilities/Total assets Debt to equity ratio=Total liabilities/Total stockholder's equity 2017 2016 1) Current liabilities 590 843 2) Long-term liailities 1597 1052 3) Total liabilities (1)+(2) 2187 1895 4) Total assets 3207 2934 5) Debt ratio (3/4) 68.19% 64.59% 6) Stockholder's equity 1020 1039 7) Debt to equity ratio (3/6) 2.14 1.82 j. Times interest earned ratio=Earnings before interest and taxes/interest expenses 2017 2016 1) Net income 230 225 2) Tax 0 0 3) Interst expense 97 78 4) Earnings before interst and taxes (1+2+3) 327 303 5) Times interest earned ratio (4/3) 3.37 3.88

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