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Problem
Below are current year financial statements for two companies in the same industries and direct competitors. Both companies have been in operation approximately the same length of time.
Company A
Company B
Balance Sheet
Cash
31,000
16,000
Accounts receivable (net)
29,000
24,000
Inventory
87,000
Property and equipment, net
125,000
394,000
Other assets
79,000
298,000
Total assets
351,000
761,000
Current liabilities
91,000
47,000
Long-term debt (5% interest)
62,000
58,000
Capital stock ($5 par)
145,000
505,000
Contributed capital in excess of par
18,000
103,000
Retained earnings
35,000
48,000
Total liabilities and stockholders' equity
Income Statement
Sales revenue (1/3 of sales on credit)
452,000
799,000
Cost of goods sold
(250,000)
(396,000)
Expenses (including interest and taxes)
(161,000)
(308,000)
Net income
41,000
95,000
Selected data from prior year
33,000
81,000
42,000
110,000
375,000
Long-term debt
65,000
70,000
Other data
Market price per share at end of current year
$16
$13
Average income tax rate
25%
Dividends declared and paid in current year
22,000
88,000
Required:
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