Question

Myers, Inc.

Income Statement
For the Year Ended December 31, 2020
Sales revenue $400,000
Cost of goods sold 180,000
Gross profit 220,000
Expenses (including $10,000 interest and $20,000 income taxes) 80,000
Net income $ 140,000
Additional information:________.
1. Common stock outstanding January 1, 2020, was 16,000 shares, and 24,000 shares were outstanding at December 31, 2020.
2. The market price of Myers stock was $9.59 in 2020.
3. Cash dividends of $19,600 were paid, $3,000 of which were to preferred stockholders.
Compute the following measures for 2020. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)
(a) Earnings per share $
(b) Price-earnings ratio times
(c) Payout ratio %
(d) Times interest earned times

Answer 1

a. $6.85

b. 1.4 times

c. 11.9%

d. 17 times

Step-by-step explanation:

a) Weighted Average number of common shares outstanding = (Number of common shares outstanding in the beginning + Number of common shares outstanding in the end)/2

= (16,000 +24,000) /2

= 20,000 shares

Earnings per share = (Net income – Preferred stock dividend)/Weighted Average number of common shares outstanding

= (140,000 - 3,000) / 20,000

= 137,000/20,000

= $6.85

b) Price earnings ratio = Market price of 1 common share/Earnings per share

= 9.59 / 6.85

= 1.4 times

c) Payout ratio = Cash dividends on common stock/Net income

= 16,600 / 140,000

= 0.11857

= 11.9%

d) Times interest earned = (Net income + Interest expense + Tax expense) / Interest expense

= (140,000 + 10,000 + 20,000)/10,000

= 170,000 / 10,000

= 17 times