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

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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