Problem 1
Botox Facial Care had earnings after taxes of $325,000 in 2009 with 200,000 shares of stock outstanding. The stock price was $95.60. In 2010, earnings after taxes increased to $407,000 with the same 200,000 shares outstanding. The stock price was $104.00.
(a) Compute earnings per share and the P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings per share. (Enter only numeric values.
Earnings per share
P/E ratio
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(b) Compute earnings per share and the P/E ratio for 2010.
Earnings per share
P/E ratio
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(c) Why the P/E ratio changed? (Round your intermediate calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
The stock price % while EPS only
Problem 2
The Jupiter Corporation has a gross profit of $726,000 and $337,000 in depreciation expense. The Saturn Corporation also has $726,000 in gross profit, with $48,300 in depreciation expense. Selling and administrative expense is $220,000 for each company.
(a) Given that the tax rate is 40 percent, compute the cash flow for both companies.
Jupiter Saturn
Cash flow
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(b) What is the difference in cash flow between the two firms?
Difference in cash flow
Problem 3
Coastal Pipeline, Inc., anticipated cash flow from operating activities of $9 million in 2010. It will need to spend $6.0 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $1.20 million and preferred stock dividends at $.65 million.
(a) What is the firm's projected free cash flow for the year 2010?
Free cash flow $ million
(b) What does the concept of free cash flow represent?