Question

Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $270,000. All sales were on account. Assume that Castile Products, Inc., paid dividends of $2.55 per share during the year. Also assume that the company’s common stock had a market price of $70 at the end of the year and there was no change in the number of outstanding shares of common stock during the year.

Answer 1

Additional information:

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc.

Balance Sheet

December 31

Assets

Current assets:

Cash $23,000

Accounts receivable, net $250,000

Merchandise inventory $340,000

Prepaid expenses $8,000

Total current assets $621,000

Property and equipment, net $840,000

Total assets $1,461,000

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $290,000

Bonds payable, 11% $300,000

Total liabilities $590,000

Stockholders’ equity:

Common stock, $10 par value $130,000

Retained earnings $741,000

Total stockholders’ equity $871,000

Total liabilities and equity $1,461,000

Castile Products, Inc.

Income Statement

For the Year Ended December 31

Sales $2,140,000

Cost of goods sold $1,230,000

Gross margin $910,000

Selling and administrative expenses $600,000

Net operating income $310,000

Interest expense $33,000

Net income before taxes $277,000

Income taxes (30%) $83,100

Net income $193,900

Required:

Compute financial ratios as follows: 1. Earnings per share. (Round your answer to 2 decimal places.) 2. Dividend payout ratio. (Round your intermediate calculations to 2 decimal places. Round your final percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).) 3. Dividend yield ratio. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).) 4. Price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.) 5. Book value per share. (Round your answer to 2 decimal places.)

Answer:

1. $14.92
2. 17.1%
3. 3.6%
4. 4.7
5. $67

Step-by-step explanation:

1. Earnings per share = net income / average shares outstanding = $193,900 / 13,000 stocks = $14.92

2. Dividend payout ratio = total dividends / net income = ($2.55 x 13,000) / $193,900 = $33,150 / $193,900 = 17.1%

3. Dividend yield ratio = dividend per share / market price per share = $2.55 / $70 = 3.6%

4. Price-earnings ratio = price per share / earnings per share = $70 / $14.92 = 4.7

5. Book value per share = (stockholders' equity - preferred stocks) / total number of stocks outstanding = $871,000 / 13,000 = $67