AccoUntinG Connection- An investor is considering investing in the long- term bonds and common stock of Companies A and B. Both firms operate in the same industry. Both also pay a dividend per share of $8 and have a yield of 10 percent on their long-term bonds. Other data for the two firms follow.
Chapter 14: Financial Statement Analysis
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Company A
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Company B
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Total assets
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$4,800,000
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$2,160,000
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Total liabilities
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2,160,000
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1,188,000
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Prior year stockholders' equity
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2,120,000
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750,000
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Income before income taxes
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576,000
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259,200
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Interest expense
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194,400
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106,920
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Net income
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136,800
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74,800
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Earnings per share
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6.40
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10.00
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Market price of common stock
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80.00
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95.00
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Compute the debt to equity ratio, return on equity ratio, interest coverage ratio, and price/earnings (P/E) ratio, as well as the dividend yield, and comment on the results. (Round to one decimal place.)
Text Book: Financial and Managerial Accounting By Belverd Needles, Marian Powers, Susan V. Crosson.