The condensed financial statements of Hallelra Company for the years 2015-2016 a

Question

The condensed financial statements of Hallelra Company for the years 2015-2016 are presented below: HALLEIRA COMPANY Comparative Balance Sheets As of December 31, 2016 and 201:5 2016 2015 Cash Receivables (net) Inventories Plant and equipment Accumulated depreciation $ 420,000$ 120,000 300,000 340,000 1,112,000 (260,000)(192,000) $1,680,000 460,000 380,000 1,700,000 52.700.000 $ $ 240,000 160,000 Accounts payable Dividends payable Bonds pavable Common stock ($10 par) Retained earnings 40,000 -0 400,000 -0 1,200,000 280,000 $1,680,000 1,520,000 540,000 $2.700,000 $ Additional data: Market value of stock at 12/31/16 was $80 per share. Hallelra Co. sold 32,000 shares of common stock at par on July 1, 2016. HALLEIRA COMPANY Condensed Income Statement For the Year Ended December 31, 2016 Sales Cost of goods sold Gross profit Administrative and selling expense Net income $2,400,000 1,600,000 800,000 500,000 300,000

Explanation / Answer

Rate of return on common stock equity in 2016:

Return on equity = Net income - preferred dividend/Average common stock hloders equity

Here,

Net income = 3,00,000

Average common stock holders equity = 20,60,000 + 14,80,000/2

Average common stock holders equity = 17,70,000.

Rate of return on common stock equity in 2016 = 300000/1770000*100 = 16.95%

2.PRICE EARNINGS RATIO AT 12/31/2016(PE RATIO):

PE RATIO = Market value price per share/Earnings per share

Market value = $ 80 per share.

Earnings per share = earnings available to equity share holders/weighted average equity shares.

calculation of weighted average equity share holders = 120000*6/12 + 152000*6/12 = 136000 shares.

EPS = $ 300000/136000shares = 2.21 per share.

PE ratio = Market price per share/EPS

            = $ 80/2.21

PE ratio = 36.

3.Debt to total assets = total liabilities/ total assets

                                = $ 640000/27,00,000*100

debt to total assets = 23.7%

4.Book value per share:= common share holders equity/number of common shares

                                  = $ 1520000+540000/152000

   Book value per share =$13.55 per share

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