Profitability Analysis and Analytical Issues Paper 4

1

Donovan Corporation recently declared and issued a 50% stock dividend. This transaction will reduce the company’s






2

What type of ratio is earnings per share?






3

A company had 150,000 shares outstanding on January 1. On March 1, 75,000 additional shares were issued through a stock dividend. Then on November 1, the company issued 60,000 shares for cash. The number of shares to be used in the denominator of the EPS calculation for the year is






4

Blackmer Company had 80,000 shares of common stock outstanding as of December 1, Year 1 the beginning of the company’s fiscal year The company also had $200,000 of 8% convertible bonds outstanding that had been issued at $1,000 par. The bonds were convertible into 20,000 shares of common stock The company’s tax rate is 34%. The company’s net income for the year was $107,000, and no bonds were converted during the year. The diluted earnings per share (rounded to the nearest cent) of Blackmer common stock for the fiscal year ended November 30, Year 2, was






5

The Dwyer Company balance sheet indicates that the company has $2,000,000 of 7.5% convertible bonds, $1,000,000 of 9% preferred stock, par value $100, and $1,000,000 common stock, par value $10. The company reported net income of $317,000. The bonds can be converted into 50,000 common shares. The income tax rate is 36%. Which one of the following would Dwyer report as diluted earnings per share?






6

For the year ended May 31, Year 2, Cooper, Inc., had per-share earnings of $4.80 Cooper’s outstanding stock for the Year 1-Year 2 fiscal year consisted of $2,000,000 of 10% preferred with $100 par value and 1,000,000 shares of common. On June 1, Year 2, the common stock split 3 for 1, and the company redeemed one-half of the preferred stock at par value Cooper’s net income for the year ended May 31, Year 3, was 10% higher than in Year 2. Earnings per share in Year 3 on Cooper’s common stock were






7

Baylor Company paid out one-half of last year’s earnings in dividends Baylor’s earnings increased by 20%, and the amount of its dividends increased by 15% in the current year. Baylor’s dividend payout ratio for the current year was






8

Residco, Inc., expects net income of $800,000 for the next fiscal year. Its targeted and current capital structure is 40% debt and 60% common equity. The director of capital budgeting has determined that the optimal capital spending for next year is $1.2 million. If Residco follows a strict residual dividend policy, what is the expected dividend-payout ratio for next year?






9

All else being equal, a company with a higher dividend-payout ratio will have a debt-to-assets ratio and a current ratio.
List A
List B






10

Which of the following is correct for a firm with $100,000 in net earnings, 10,000 shares, and a 30% payout ratio?






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