| Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $550,000 long-term loan from Gulfport State Bank, $125,000 of which will be used to bolster the Cash account and $425,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: |
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 90,000 | $ | 200,000 |
| Marketable securities | 0 | 23,000 | ||
| Accounts receivable, net | 542,000 | 350,000 | ||
| Inventory | 995,000 | 645,000 | ||
| Prepaid expenses | 22,000 | 27,000 | ||
| Total current assets | 1,649,000 | 1,245,000 | ||
| Plant and equipment, net | 1,638,000 | 1,420,000 | ||
| Total assets | $ | 3,287,000 | $ | 2,665,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 825,000 | $ | 480,000 |
| Bonds payable, 12% | 850,000 | 850,000 | ||
| Total liabilities | 1,675,000 | 1,330,000 | ||
| Stockholders’ equity: | ||||
| Common stock, $20 par | 740,000 | 740,000 | ||
| Retained earnings | 872,000 | 595,000 | ||
| Total stockholders’ equity | 1,612,000 | 1,335,000 | ||
| Total liabilities and equity | $ | 3,287,000 | $ | 2,665,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,250,000 | $ | 4,500,000 |
| Cost of goods sold | 3,925,000 | 3,500,000 | ||
| Gross margin | 1,325,000 | 1,000,000 | ||
| Selling and administrative expenses | 663,000 | 558,000 | ||
| Net operating income | 662,000 | 442,000 | ||
| Interest expense | 102,000 | 102,000 | ||
| Net income before taxes | 560,000 | 340,000 | ||
| Income taxes (30%) | 168,000 | 102,000 | ||
| Net income | 392,000 | 238,000 | ||
| Common dividends | 115,000 | 94,000 | ||
| Net income retained | 277,000 | 144,000 | ||
| Beginning retained earnings | 595,000 | 451,000 | ||
| Ending retained earnings | $ | 872,000 | $ | 595,000 |
| c. | The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) | ||||||||||||||||||
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| e. | The book value per share of common stock. (Round your answers to 2 decimal places.) | |||||||||
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| 2. | You decide next to assess the company’s profitability. Compute the following for both this year and last year: |
