Final answer:
To calculate the return on total assets for Year 2, divide the net income by the average total assets. The return on total assets is 10.4%. To calculate the return on stockholders' equity for Year 2, divide the net income by the average stockholders' equity. The return on stockholders' equity is 13.8%. To calculate the earnings per share on common stock for Year 2, divide the net income by the weighted average number of common shares outstanding. The earnings per share is $4.16. To calculate the price-earnings ratio on common stock for Year 2, divide the market price of the common shares by the earnings per share. The price-earnings ratio is 7.5.
Step-by-step explanation:
To calculate the return on total assets for Year 2, you need to divide the net income by the average total assets. The formula for return on total assets is: Return on Total Assets = Net Income / Average Total Assets * 100. Taking the numbers from the given balance sheets, we can calculate the average total assets for Year 2 using the formula: Average Total Assets = (Total Assets Year 1 + Total Assets Year 2) / 2. We can then substitute the values into the return on total assets formula, which gives us a value of 10.4%. Therefore, the correct answer is a. 10.4%.
To calculate the return on stockholders' equity for Year 2, you need to divide the net income by the average stockholders' equity. The formula for return on stockholders' equity is: Return on Stockholders' Equity = Net Income / Average Stockholders' Equity * 100. Using the same method as above, we can calculate the average stockholders' equity and substitute the values into the formula to get a value of 13.8%. Therefore, the correct answer is d. 13.8%.
To calculate the earnings per share on common stock for Year 2, you need to divide the net income by the weighted average number of common shares outstanding. The formula for earnings per share is: Earnings per Share = Net Income / Weighted Average Number of Common Shares Outstanding. Given the net income of $250,000, we need to calculate the weighted average number of common shares outstanding. To do this, we need the common shares outstanding for both Year 1 and Year 2. The formula for weighted average number of common shares outstanding is: Weighted Average Number of Common Shares Outstanding = (Common Shares Year 1 * Number of Months in Year 1 + Common Shares Year 2 * Number of Months in Year 2) / 12. Substituting the values into the formula gives us an earnings per share of $4.16. Therefore, the correct answer is a. $4.16.
To calculate the price-earnings ratio on common stock for Year 2, you need to divide the market price of the common shares by the earnings per share. The formula for price-earnings ratio is: Price-Earnings Ratio = Market Price of Common Shares / Earnings per Share. Given a net income of $250,000, interest expense of $20,000, and a market price of $30, we can calculate the earnings per share using the method described above. Substituting the values into the formula gives us a price-earnings ratio of 7.5. Therefore, the correct answer is a. 7.5.