21-17

Name: SOLUTION
Enter the appropriate amounts in the shaded cells in columns I, K and M.
a. Return on equity:
Common stock, $1 par
Additional paid-in capital
Retained earnings
Total equity
Net income
Total equity

2002
200,000
1,750,000
300,000
$ 2,250,000

Net income
Add back interest expense
Earnings before interest
Earnings before interest
Interest expense

$ 280,000
$ 2,250,000

$ 130,000
$ 1,500,000

$
70,000
$ 1,450,000

12.4%

$
$
$

2002
600,000
60,000

$
$
$

340,000
60,000

$
$

2000
600,000
60,000

70,000
60,000
130,000

$
$

190,000
60,000

$
$

130,000
60,000

3.2 times

2.2 times

2001

2000

280,000
200,000

130,000
150,000

70,000
150,000

1.40

0.87

0.47

2002
$
$

2001

100,000
280,000

$
$

35.7%

e. Price-earnings ratio
$
$

80,000
130,000

$
$

21
1.40

$
$

2000

24
0.87

$
$

27.6

2002
$

10
0.47
21.3

2001
21

50,000
70,000
71.4%

2001

15.0

2000

61.5%

2002

Price-earnings ratio
f. Book-to-market ratio:
Year-end stock price per share

4.8%

130,000
60,000
190,000

2002

Dividend payout ratio

Year-end stock price per share

Earnings per share

2001
600,000
60,000

5.7 times

d. Dividend payout ratio

Dividends
Net income

$
$
$

c. Earnings per share:

Earnings per share

8.7%

280,000
60,000
340,000

Times interest earned

Net income
Number of $1 par shares

2000
150,000
1,250,000
50,000
$ 1,450,000

Return on equity
b. Times interest earned:
10% bonds payable
Interest at 10%

2001
150,000
1,250,000
100,000
$ 1,500,000

2000
24

10

Number of $1 par shares

Total market value

200,000
$ 4,200,000

150,000
$ 3,600,000

150,000
$ 1,500,000

Total equity
Total market value

$ 2,250,000
$ 4,200,000

$ 1,500,000
$ 3,600,000

$ 1,450,000
$ 1,500,000

0.54

0.42

0.97

Book-to-market ratio