Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several

Question

Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $620,000 long-term loan from Gulfport State Bank, $160,000 of which will be used to bolster the Cash account and $460,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 118,000 $270,000 30,000 420,000 715,000 34,000 633,000 1,065,000 30,000 Total current assets Plant and equipment, net 1,846,000 1,969,200 1,469,000 1,490,000 Total assets $3,815,200 2,959,000 Liabilities and Stockholders Equity Liabilities Current liabilities Bonds payable, 12% $ 820,000 S420,000 850,000 850,000 Total liabilities 1,670,000 1,270,000 Stockholders' equity: Common stock, $15 par Retained earnings 810,000 810,000 1,335,200 2,145,200 $3,815,200 879,000 1,689,000 2,959,000 Total stockholders' equity Total liabilities and equity

Explanation / Answer

Answer a. Earning Per share = (Net Income - Dividends on Preferred Stock) / Avg. No. of outstanding Common Stock This Year Last Year Net Income          578,200          326,600 No. of O/s Common Shares            54,000            54,000 EPS              10.71                 6.05 Answer b. Dividend Yield Ratio = Annual Dividend Per Share / Price per Share This Year Last Year Dividend Per Share                 2.26                 1.87 Market Price per Share              50.00              45.00 Dividend Yield Ratio 4.52% 4.16% Answer c. Dividend Payout Ratio = Dividends / Net Income This Year Last Year Dividends          122,000          101,000 Net Income          578,200          326,200 Dividend Payout Ratio 21.10% 30.96% Answer d. Price-earnings Ratio = Market Value per Share / Earning Per Share This Year Last Year MV per Share              50.00              45.00 EPS              10.71                 6.05 Price Earning Ratio                 4.67                 7.44

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