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Posted by: Homeworkhelp
Price Quoted by Student: $10
Posted On: 2016-05-09 09:09:29
 
Question
Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2007, financial statements:

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
ASSETS
Cash and short-term investments..................$1,400
Accounts receivable, net...............................4,900
Property, plant, and equipment, net...............38,700
Total Assets................................................$45,000

LIABILITIES AND OWNERS EQUITY
Accounts payable..........................................$750
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

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 ratio
3. Dividend yield
4. Dividend payout ratio

 

TUTORIAL PREVIEW

By entering into a long-term capital lease of $2 million, Gerrard Construction Co. would be increasing its assets (capital lease assets are treated as part of property, plant & equipment) and its

 


Solutions
Gerrard Construction Company wishes to lease s
Price $10
Attachment 1: Gerrard Construction Co.doc
Solution Posted By: Homeworkhelp    Posted on: 09-05-2016