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Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company's financial statements for the most recent two years follow:
183,897
126,547
During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.
Assume that you have just inherited several hundred shares of Modern Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited.
You decide first to assess the well-being of the common stockholders. For both this year and last year, compute the following:
The earnings per share. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
The dividend yield ratio for common stock. The company's common stock is currently selling for $39 per share; last year it sold for $30 per share. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place. Omit the "%" sign in your response.)
The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place. Omit the "%" sign in your response.)
The price-earnings ratio. How do investors regard Modern Building Supply as compared to other companies in the industry? (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)
The book value per share of common stock. Does the difference between market value and book value suggest that the stock at its current price is too high? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
You decide next to assess the company's rate of return. Compute the following for both this year and last year:
The return on total assets. (Total assets at the beginning of last year were $2,240,000.) (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
The return on common stockholders' equity. (Stockholders' equity at the beginning of last year was $1,279,000.) (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
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