2. Sosa Diet Supplements had earnings after taxes of $800,000 in the year 2008 with 200,000 shares of common stock outstanding. On January 1, 2009, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements,earnings after taxes increased by 30 percent.
a. Compute earnings per share for the year 2008.
b. Compute earnings per share for the year 2009.
10. The Ace Book Company sold 1,500 finance textbooks for $185 each to High Tuition University in 2008. These books cost Ace $145 to produce. Ace spent $10,000 (selling expense) to convince the university to buyits books. In addition, Ace borrowed $80,000 on January 1, 2008, on which the company paid 10 percent interest. Both interest and principal on the loan were paid on December 31, 2008. Ace’s tax rate is 25 percent. Depreciation expense for the year was $15,000. Did Ace Book Company make a profit in 2008? Please verify with an income statement presented in good form.
11. Carr Auto Wholesalers had sales of $900,000 in 2008 and their cost of goods sold represented 65 percent of sales. Selling and administrative expenses were 9 percent of sales. Depreciation expense was $10,000 and interest expense for the year was $8,000. The firm’s tax rate is 30 percent.
a. Compute earnings after taxes.
b. Assume the firm hires Ms. Hood, an efficiency expert, as aconsultant. She suggests that by increasing selling and administrative expenses to 12 percent of sales, sales can be increased to $1,000,000. The extra sales effort will also reduce cost of goods sold to 60 percent of sales (there will be a larger markup in prices as a result of more aggressive selling). Depreciation expense will remain at $10,000. However, more automobiles will have tobe carriedin inventory to satisfy customers, and interest expense will go up to $15,000. The firm’s tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Hood’s suggestions for Carr Auto Wholesalers.
Will her ideas increase or decrease profitability?
Earnings per share
15. Elite Trailer Parks has an operating profit of $200,000.Interest expense for the year was $10,000; preferred dividends paid were $18,750; and common dividends paid were $30,000. The tax was $61,250. The firm has 20,000 shares of common stock outstanding.
a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks.
b. What was the increase in retained earnings for the year?
19. Identify whethereach of the following items increases or decreases cash flow:
Increase in accounts receivable Decrease in prepaid expenses
Increase in notes payable Increase in inventory
Depreciation expense Dividend payment
Increase in investments Increase in accrued expenses
Decrease in accounts payable
Free cash flow
20.Nova Electrics anticipated cash flow from operating activities of $6 million in 2008. It will need to spend $1.2 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $.4 million and preferred stock dividends at $.55 million.
a. What is the firm’s projected free cash flow for the year 2008?
b. What does the concept of free cashflow represent?
Book value and
23. The Holtzman Corporation has assets of $400,000, current liabilities of $50,000, and long-term liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $22,000 in earnings available to common stockholders and...