2. Bentz Co. has two divisions, A and B. Invested assets and condensed income st
ID: 2591013 • Letter: 2
Question
2. Bentz Co. has two divisions, A and B. Invested assets and condensed income statement data for each division for the past year ended December 31 are as follows:
Division A
Division B
Revenues
$190,000
$125,500
Operating expenses
112,500
92,750
Service department charges
29,500
12,625
Invested assets
225,000
99,000
Cash and short-term investments
$ 30,000
Accounts receivable (net)
20,000
Inventory
15,000
Property, plant, and equipment
185,000
Total assets
$250,000
Liabilities and Stockholders’ Equity
Current liabilities
$ 45,000
Long-term liabilities
70,000
Stockholders’ equity—Common
135,000
Total liabilities and stockholders’ equity
$250,000
Income Statement
Sales
$ 85,000
Cost of goods sold
45,000
Gross margin
$ 40,000
Operating expenses
(15,000)
Interest expense
(5,000)
Net income
$ 20,000
Number of shares of common stock outstanding
6,000
Market price of common stock
$20
Total dividends paid
$9,000
Cash provided by operations
$30,000
Determine the following (and remember to show all work):
ratio of sales to total assets
rate earned on total assets
dividends per common share
dividend yield
Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division.
Division A
Division B
Revenues
$190,000
$125,500
Operating expenses
112,500
92,750
Service department charges
29,500
12,625
Invested assets
225,000
99,000
Explanation / Answer
CALCULATION OF RATIOS:
RATIOS FORMULA ANSWER Ratio of Sales to Total assets Net sales / Total assets 85,000 / 250,000 = 0.34:1 Rate earned on Total assets (Net Income / Total Assets) * 100 (20,000 / 250,000) * 100 = 8% Dividends per common share Total dividend / Number of shares of common stock outstanding 9,000 / 6,000 = $1.5 per share Dividend yield Dividend per share / Market price per share 1.5 / 20 = 0.075 or 7.5% *--------------*---------- *---------------*---------------*-------------------*------ -----*------------------*Related Questions
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