Profitability Analysis and Analytical Issues Paper 3

1

The equity section of Jones Corporation’s statement of financial position is presented below:
Preferred stock, 6%, $100 par $40,000,000
Common stock, $4 par $10,000,000
Additional paid-in capital $20,000,000
Retained earnings $10,000,000
Equity $80,000,000
The preferred stock is cumulative and nonparticipating. All preferred dividends have been paid, and liquidation value is $110 per preferred share. What is the book value per share of Jones Corporation’s common stock?






2

Which one of the following statements about the price-earnings (P/E) ratio is true?






3

Information concerning Hamilton’s common stock is presented below for the fiscal year ended May 31, Year 2.
Common stock outstanding 750,000
Stated value per share $15.00
Market price per share 45.00
Year 1 dividends paid per share 4.5
Year 2 dividends paid per share 7.5
Basic earning per share 11.25
Diluted earnings per share 9.0
The price-earnings ratio for Hamilton’s common stock is






4

The following information is provided about the common stock of Evergreen, Inc., at the end of the fiscal year:
Number of shares outstanding 1,800,000
Par value per share $ 10.00
Dividends paid per share (last 12 months) 12.00
Market price per share 108.00
Basic earnings per share 36.00
Diluted earnings per share 24.00
The price-earnings ratio for Evergreen’s common stock is






5

Information concerning the common stock of Morris Company as of November 30, the end of the company’s current fiscal year is presented below
Number of shares outstanding 460,000
Par value per share $ 5.0
Dividends paid per share in current year 6.00
Market price per share 54.00
Basic earnings per share 18.00
Diluted earnings per share 12.00
The price-earnings ratio for Morris Company’s common stock is






6

Kevlin, Inc., has 250,000 shares of $10 par value common stock outstanding. For the current year, Kevlin paid a cash dividend of $3.50 per share and had earnings per share of $4.80. The market price of Kevlin’s stock is $34 per share Kevlin’s price-earnings ratio is






7

A steady drop in a firm’s price-earnings ratio could indicate that






8

At year end, Appleseed Company reported net income of $588,000. The company has 10,000 shares of $100 par value, 6% preferred stock and 120,000 shares of $10 par value common stock outstanding and 5,000 shares of common stock in treasury. There are no dividend payments in arrears, and the market price per common share at the end of the year was $40. Appleseed’s price-earnings ratio is






9

Archer, Inc., has 500,000 shares of $10 par value common stock outstanding. For the current year, Archer paid a cash dividend of $4.00 per share and had earnings per share of $3.20. The market price of Archer’s stock is $36 per share The average price-earnings ratio for Archer’s industry is 14.00 When compared to the industry average Archer’s stock appears to be






10

When reviewing a credit application, the credit manager should be most concerned with the applicant’s






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