Peterborough's capital structure was as follows:Dec. 31, 1995 Dec. 31, 1996Outstanding shares of stock:Common $110,000 $110,000Convertible preferred $10,000 $10,0008% convertible bonds $1,000,000 $1,000,000During 1996, Peterborough paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 common shares and are considered common stock equivalents. The 8% bonds are convertible into 30,000 common shares but are not considered common stock equivalents. Net income for 1996 was $850,000. Assume that the income tax rate is 30%. The primary earnings per share for 1996 is ________.
Answer(s): C
As common stock equivalent (CSE), the preferred stock must be considered in the calculation of primary earnings per share (PEPS) and assumed to have no preferred dividends paid. PEPS is then $6.54 ($850,000/ (110,000 + 20,000)).
Which of the following would not be included as an asset on a corporate balance sheet?
Answer(s): E
Common stock. Common stock is not as asset; it represents funds received from the sale of stock to owners of the firm. It is ownership equity, not an asset.
Which of the following groups are least likely to be creditors of a company?
Answer(s): D
The customers that buy on credit owe the company; they are not creditors of the company unless the company owes them.
A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?
Common-size financial statements present items in a financial statement as percentages of a common base.Comparison among firms in the same industry is made possible despite differences in size. Comparison of firms in different industries has drawbacks because the optimum mix of assets, liabilities, etc. will vary from industry to industry.
The following data have been extracted from the financial statements of a firm for two years, 1995 and 1996:1995 1996Assets 8,174 8,439Net Sales 9,412 8,949Receivables 1,135 986Inventory 2,119 2,464COGS 6,948 7,089The receivables turnover ratio and the average receivables collection period for 1996 equal ________.
Answer(s): A
Receivables turnover ratio = Net annual sales/average receivables Average receivables collection period = 365/ receivables turnover. For 1996, the average receivables equal (986+1135)/2 = 1061. Receivables turnover ratio = 8949/1061 = 8.44. Average receivables collection period = 365/8.44 = 43.25 days.
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