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The Following Information Applies to Acorn Construction Company (ACC) Information on the Number of Shares Outstanding Is Provided Below

Question 123

Essay

The following information applies to Acorn Construction Company (ACC):
 Year 2 Year 1 Net sales $880,000$600,000 Income before interest and taxes 127,50084,000 Net income 59,00052,000 Interest expense 24,50015,000 Stockholder’s’ equity, December 31 810,300725,000 Common stock 750,300700,000 Preferred stock dividends 24,00024,000\begin{array}{lrr}&\text { Year } 2 & \text { Year } 1\\\text { Net sales } & \$ 880,000& \$ 600,000 \\\text { Income before interest and taxes } & 127,500& 84,000 \\\text { Net income } & 59,000 & 52,000 \\\text { Interest expense } & 24,500 & 15,000 \\\text { Stockholder's' equity, December 31 } & 810,300& 725,000 \\\text { Common stock } & 750,300 & 700,000 \\\text { Preferred stock dividends } & 24,000 & 24,000\end{array}
Information on the number of shares outstanding is provided below:
 Ave. # of shares outstanding Year 1 38,000 Ave. # of shares outstanding Year 2 33,000\begin{array} { | l | l |} \hline \text { Ave. \# of shares outstanding Year 1 } & 38,000 \\\hline \text { Ave. \# of shares outstanding Year 2 } & 33,000 \\\hline\end{array} Required:
Compute the following ratios for ACC for Year 2 and Year 1:
(a)Number of times interest is earned
(b)Earnings per share
(c)Price-earnings ratio (Market prices: Year 2 $17.50 per share,Year 1 $15.00 per share)
(d)Return on equity
(e)Net margin.

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