Question

Shown below is the liabilities and stockholders’ equity section of the balance sheet for Istar Company and Honey Dew Inc. Each has assets totaling $1,000,000.


For the year, each company has earned the same income before interest and taxes.


At year end, the market price of Istar‘s stock was $15 per share, and Honey Dew’s was $11 per share.

Instructions
(a) Which company is more profitable in terms of return on total assets?
(b) Which company is more profitable in terms of return on stockholders’ equity?
(c) Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year.
(d) From the point of view of net income, is it advantageous to the stockholders of Istar Co. to have the long-term debt outstanding? Why?
(e) What is the book value per share for eachcompany?


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  • CreatedJune 07, 2013
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