Gerrard
Construction Co. is an excavation contractor. The following summarized data (in
thousands) are taken from the December 31, 2007, financial statements:
Cost of Services Provided..........5,700
Depreciation expense...............3,250
Operating Income....................$7,150
Interest Expense......................1,900
Income Tax expense.................1,600
Net Income..............................$3,650
Cash and short-term investments..................$1,400
Accounts receivable, net...............................4,900
Property, plant, and equipment, net...............38,700
Total Assets................................................$45,000
Income taxes payable.....................................800
Notes payable (long term)...............................23,750
Paid-in capital................................................5,000
Retained earnings..........................................14,700
Total liabilities and owners equity....................$45,000
3. Dividend yield
4. Dividend payout ratio
FOR
THE YEAR ENDED DECEMBER 31, 2007:
Net
Revenue....................... ...$16,100 Cost of Services Provided..........5,700
Depreciation expense...............3,250
Operating Income....................$7,150
Interest Expense......................1,900
Income Tax expense.................1,600
Net Income..............................$3,650
AT
DECEMBER 31, 2007
ASSETSCash and short-term investments..................$1,400
Accounts receivable, net...............................4,900
Property, plant, and equipment, net...............38,700
Total Assets................................................$45,000
LIABILI TIES
AND OWNERS EQUI TY
Accounts
payable..........................................$750Income taxes payable.....................................800
Notes payable (long term)...............................23,750
Paid-in capital................................................5,000
Retained earnings..........................................14,700
Total liabilities and owners equity....................$45,000
At
December 31,2006 total assets were $41,000 and total owners equity was $16,300.
There were no changes in notes payable or paid-in capital during 2007.
1 Gerrard Construction
Company wishes to lease some new earth moving equipment from Caterpillar on a
long-term basis. What impact (increase, decrease, or no effect) would a capital
lease of $2 million have on the company's debt ratio and debt/equity ratio?
2 Calculate the amount of
dividends declared and paid during the year ended December 31, 2007 (Hint: Do a
T-account analysis of retained earnings.)
3 Review the answer to
question number 2. At this time assume that Gerrard Construction Co. had
1,200,000 shares of $1 par value common stock outstanding throughout 2007, and
that the market price per share of common stock at December 31, 2007 was
$18.75. Calculate the following profitability measures for the year ended
December 31, 2007.
1.
Earnings per share of common stock
2.
Price/earnings ratio3. Dividend yield
4. Dividend payout ratio
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