Kepler Company Comparative Income Statements This Year Last Year Sales $ 950,000 $ 900,000 Less: Cost of goods sold 500,000 490,000 Gross margin $ 450,000 $ 410,000 Less: Selling and administrative expenses 275,000 260,000 Operating income $ 175,000 $ 150,000 Less: Interest expense 12,000 18,000 Income before taxes $ 163,000 $ 132,000 Less: Income taxes 65,200 52,800 Net income $ 97,800 $ 79,200 Less: Dividends (common) 27,800 19,200 Net income, retained $ 70,000 $ 60,000 Also, assume that for last year and for the current year, the market price per share of common stock is $2.98. In addition, for last year, assets and equity were the same at the beginning and end of the year. Required: Note: Round all answers to two decimal places. 1. Compute the following for each year: This Year Last Year a. Return on assets % % b. Return on stockholders' equity % % c. Earnings per share $ $ d. Price-earnings ratio e. Dividend yield % % f. Dividend payout ratio

Kepler Company

Comparative Balance Sheets

                                                This Year  Last Year

Assets

Current assets:

Cash                          $ 50,000$100,000

Accounts receivable, net  300,000   150,000

Inventory                          600,000  400,000

Prepaid expenses                    25,000            30,000

Total current assets      $ 975,000       $680,000

Property and equipment, net 125,000          150,000

Total assets                     $1,100,000       $830,000

Liabilities and Stockholders' Equity  

Current liabilities:  

Accounts payable                 $ 400,000  $290,000

Short-term notes payable         200,000  60,000

Total current liabilities         $ 600,000  $350,000

Long-term bonds payable, 12% 100,000     150,000

Total liabilities                 $ 700,000  $500,000

Stockholders' equity:  

Common stock

 (100,000 shares)                   200,000    200,000

Retained earnings                   200,000     130,000

Total liabilities and

stockholders' equity      $1,100,000   $830,000

Kepler Company

a. Return on assets =  Net Income/Total Assets

= $ 97,800/$1,100,000     $ 79,200/$830,000

= 8.89%                               = 9.54%

b. Return on stockholders' equity = Net Income/Stockholders' equity

=  $ 97,800/$400,000     $ 79,200/$330,000

= 24.45%                               = 24%

c. Earnings per share = Net Income/Outstanding common shares

= $ 97,800/100,000     $ 79,200/100,000

= $0.98                               = $0.79

d. Price-earnings ratio = Market price/Earnings per share

= $2.98/$0.98                    = $2.98/$0.79

= 3.04 times                       = 3.77 times

e. Dividend yield =  Dividend per share/price per share

= $0.28/$2.98                    = $0.19/$2.98

= 9.40%                                      = 6.38%

f. Dividend payout ratio = Total dividends/Net Income

= $27,800/$97,800             = $19,200/$79,200

= 28.43%                              = 24.24%

Explanation:

Kepler Company

Comparative Income Statements

                                         This Year        Last Year

Sales                                $ 950,000    $ 900,000

Less: Cost of goods sold   500,000       490,000

Gross margin                  $ 450,000     $ 410,000

Less: Selling and

administrative expenses  275,000      260,000

Operating income           $ 175,000    $ 150,000

Less: Interest expense        12,000          18,000

Income before taxes      $ 163,000    $ 132,000

Less: Income taxes             65,200        52,800

Net income                       $ 97,800     $ 79,200

Less: Dividends (common) 27,800         19,200

Net income, retained      $ 70,000     $ 60,000

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