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A handbook of Corporate Finance and Investment Analysis

Author(s): Dr. Sali Bakare
Abstract:
Chapter - 1
Review of Accounting
1.1) Oni & Sons Co. has $8M in sales revenue, 100,000 common shares, and 8,000 preferred stocks outstanding. The preferred stock is with $3 annual dividend per share, Its payout ratio is 60%.
You are also given the following information about the company.
Cost of goods sold $5M
Administrative expenses $1.5M
Depreciation expenses $150,000
Interest expense $100,000
Calculate the company’s i) Gross profit, ii) Operating profit. iii) EBT, iv) Taxes, v) Net profit, vi) EPS, vii) Dividend per share.
Oni & Sons Co.
Income Statement
For the Year Ended Dec 31, 2018
Sales $8,000,000
Cost of goods sold $5,000,000
Gross profit $3,000,000
Admini Expenses $1,500,000
Depreciation expenses $150,000
Operating profit $1,350,000 i.e. $3M-($1.5M+$150,000)
Interest expense $100,000
EBT = ($1,350,000 -$100,000) $1,250,000
Taxes = 40% ($1250,000) $500,000
Net profit = ($1250000-$500,000) $750,000
Preferred dividend is: $3(8000) $24,000
Profit available for common stock $726,000 i.e. $750000 - $24000
EPS = $726,000/100,000 = $7.26
Dividend per share = (0.6($726000))/100,000
= $435,600/100,000
= $4.36
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