uestion 25  of 37

Which of the following is the formula to compute the price/earnings ratio?

The formula is (total stockholders’ equity − preferred equity) / number of shares of common stock outstanding.

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

The formula is market price per share of common stock / earnings per share.

The formula is annual dividend per share of common stock / market price per share of common stock.

Question 26  of 37

Case 17.5

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.

20072006

Net sales revenue (all credit)\$950,000

Cost of goods sold630,000

Gross profit320,000

Selling and general expenses230,000

Interest expense20,000

Net income\$70,000

Current assets\$60,000\$55,000

Long-term assets465,000445,000

Total assets – 12/31\$525,000\$500,000

Current liabilities\$25,000\$20,000

Long-term liabilities105,000205,000

Common stockholders equity – 12/31395,000275,000

Total liabilities and stockholders’ equity\$525,000\$500,000

Inventory and prepaid expenses account for \$20,000 of the 2007 current assets.

Average inventory for 2007 is \$15,000.

Average net accounts receivable for 2007 is \$30,000.

Average one-day sales are \$3,150.

There are 7,000 shares of common stock outstanding.

Total dividends paid during 2007 were \$140,000.

The market price per share of common stock is \$21.

Refer to Case 17.5. What is the debt ratio for 2007?

.55

.25

.29

.71

Question 27  of 37

Case 17.5

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.

20072006

Net sales revenue (all credit)\$950,000

Cost of goods sold630,000

Gross profit320,000

Selling and general expenses230,000

Interest expense20,000

Net income\$70,000

Current assets\$60,000\$55,000

Long-term assets465,000445,000

Total assets – 12/31\$525,000\$500,000

Current liabilities\$25,000\$20,000

Long-term liabilities105,000205,000

Common stockholders equity – 12/31395,000275,000

Total liabilities and stockholders’ equity\$525,000\$500,000

Inventory and prepaid expenses account for \$20,000 of the 2007 current assets.

Average inventory for 2007 is \$15,000.

Average net accounts receivable for 2007 is \$30,000.

Average one-day sales are \$3,150.

There are 7,000 shares of common stock outstanding.

Total dividends paid during 2007 were \$140,000.

The market price per share of common stock is \$21.

Refer to Case 17.5. What is the company’s times-interest-earned ratio?

31.5 times

47.5 times

4.5 times

16.0 times

Question 28  of 37

Case 17.5

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.

20072006

Net sales revenue (all credit)\$950,000

Cost of goods sold630,000

Gross profit320,000

Selling and general expenses230,000

Interest expense20,000

Net income\$70,000

Current assets\$60,000\$55,000

Long-term assets465,000445,000

Total assets – 12/31\$525,000\$500,000

Current liabilities\$25,000\$20,000

Long-term liabilities105,000205,000

Common stockholders equity – 12/31395,000275,000

Total liabilities and stockholders’ equity\$525,000\$500,000

Inventory and prepaid expenses account for \$20,000 of the 2007 current assets.

Average inventory for 2007 is \$15,000.

Average net accounts receivable for 2007 is \$30,000.

Average one-day sales are \$3,150.

There are 7,000 shares of common stock outstanding.

Total dividends paid during 2007 were \$140,000.

The market price per share of common stock is \$21.

Refer to Case 17.5. What is the company’s rate of return on net sales?

.063

.111

.219

.074

Question 29  of 37

Case 17.5

Bevington Studio reported the following income statement and balance sheet amounts on December 31, 2007.

20072006

Net sales revenue (all credit)\$950,000

Cost of goods sold630,000

Gross profit320,000

Selling and general expenses230,000

Interest expense20,000

Net income\$70,000

Current assets\$60,000\$55,000

Long-term assets465,000445,000

Total assets – 12/31\$525,000\$500,000

Current liabilities\$25,000\$20,000

Long-term liabilities105,000205,000

Common stockholders equity – 12/31395,000275,000

Total liabilities and stockholders’ equity\$525,000\$500,000

Inventory and prepaid expenses account for \$20,000 of the 2007 current assets.

Average inventory for 2007 is \$15,000.

Average net accounts receivable for 2007 is \$30,000.

Average one-day sales are \$3,150.

There are 7,000 shares of common stock outstanding.

Total dividends paid during 2007 were \$140,000.

The market price per share of common stock is \$21.

Refer to Case 17.5. What is the company’s rate of return on common stockholders’ equity?

.171

.209

.133

.269

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