Please explain the solution set for this problem for Chapter 12 Problem 32E.

Merck & Co., Inc., the global pharmaceutical company, included the income statements and

balance sheets in Exhibit 12-12 in its 2011 annual report. Additional information includes the

following:

Average common shares outstanding of 3,071 million in 2011

Market price per share of $37.70 at December 30, 2011, the last trading day before its fiscal

year-end of December 31, 2011

Dividends of $1.56 per share were paid on common stock during 2011

Interest expense in 2011 was $749 million

($ in millions, except per share data)

Compute the following ratios for 2011:

1. Current ratio

2. Quick ratio (use current assets - inventories as the numerator)

3. Average collection period (assume all sales are on credit)

4. Total-debt-to-total-assets (define total debt as total liabilities)

5. Total-debt-to-equity (define total debt as total liabilities)

6. Return on common stockholders' equity

7. Gross profit rate

8. Return on sales

9. Total asset turnover

10. Return on assets (defined as EBIT divided by average total assets)

11. EPS (basic)

12. P-E ratio

13. Dividend-yield ratio (for common stock)

14. Dividend-payout ratio (for common stock)

15. Market-to-book value

CONSOLIDATED BALANCE SHEETS December 31 2011 2010 Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Deferred income taxes and other current assets Total current assets Investments Property, plant, and equipment (at cost) Land Buildings Machinery, equipment, and office furnishings Construction in progress $ 13,531 1,441 8,261 6,254 3,694 33,181 3,458 $ 10,900 1.301 7.344 5,868 3.651 29,064 2.175 Accumulated depreciation Net property, plant, and equipment Goodwill Other intangibles, net Other assets Total assets 623 12,733 16,919 2,198 32,473 (16.176) 16,297 12,155 34,302 5.735 $105,128 658 11,945 15,894 2.066 30.563 (13.481) 17,082 12.378 39,456 5.626 $105.781 2010 CONSOLIDATED BALANCE SHEETS December 31 2011 Llabilities and shareholders' equity Current liabilities Loans payable and current portion of long-term debt $ 1.990 2.400 Trade accounts payable 2,462 2.308 Accrued and other current liabilities 9.731 8,514 Income taxes payable 781 1.243 Dividends payable 1.281 1.176 Total current liabilities 16,245 15,641 Long-term debt 15,525 15,482 Deferred income taxes and noncurrent liabilities 16,415 17,853 Stockholders' equity Common stock. $.50 par value Authorized-6,500,000,000 shares Issued3,576,948,356 in 2011 and 2010 1.788 1.788 Other paichin capital 40.663 40.701 Accumulated other comprehensive loss (3.132) (3.216) Retained earnings 38.990 37,536 Treasury stock, at cost 536,109,713 shares in 2011; 494,841,533 shares in 2010 (23.792 (22,433) Total Merck & Co., Inc. stockholders' equity 54.517 54,376 Noncontrolling interests 2.426 2.429 Total equity 56.943 56.805 Total liabilities and stockholders' equity $105,128 $105.781 CONSOLIDATED STATEMENTS OF EARNINGS For the Years Ended December 31 2011 2010 Sales $48,047 $45,987 Costs, expenses, and other Materials and production 16,871 18.396 Marketing and administrative 13.733 13.125 Research and development 8.467 11.111 Restructuring costs 1.306 Equity income from affiliates (610) (587) Other (income) expense, net 946 1.304 40.713 44,334 Income before taxes 7.334 1.653 Taxes on income 942 671 Net income 6.392 Less: Net income attributable to noncontrolling interests 120 121 Net income attributable to Merck & Co., Inc. $ 6.272 861 985 982