AE 15-19 COMPARISON OF ALTERNATIVE FORMS OF FINANCING

(Comparison of Alternative Forms of Financing)

Shown below is the liabilities and stockholders' equity section of the balance sheet for Ingalls Company and Wilder Company. Each has assets totaling $4,214,260.

Ingalls Co.

Wilder Co.

Current liabilities $ 300,000 Current liabilities $ 600,000

Long-term debt, 10% 1,200,000 Common stock ($20 par) 2,914,260

Common stock ($20 par) 2,014,260 Retained earnings (Cash dividends,

Retained earnings (Cash dividends, $328,000) 700,000

$220,000)

700,000

$4,214,260

$4,214,260

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

Ingalls Co.

Wilder Co.

Income before interest and taxes $1,800,000 $1,800,000

Interest expense

120,000

-0-

1,680,000 1,800,000

Income taxes (45%)

756,000

810,000

Net income

$924,000

$990,000

At year end, the market price of Ingall's stock was $101 per share, and Wilder's was $63.50.

Make the following computations. (Round answers to 2 decimal places, e.g. 10.00.)(a) Compute Ingall's return on total assets. %.

Compute Wilder's return on total assets. %

(b) Compute Ingall's return on stockholders' equity. %

Compute Wilder's return on stockholders' equity. %

(c) Neither company issued or reacquired shares during the year.

Compute Ingall's net income per share of stock. $

Compute Wilder's net income per share of stock. $

(d) From the point of view of net income, is it advantageous to the stockholders of Ingalls Co. to have the long-term debt outstanding? Yes or No. YesNo

(e) What is Ingall's book value per share. $

What is Wilder's book value per share. $