Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $57.50. The firm expects to pay a$ 3.40 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table.

Year	Dividend
2015	$3.10
2014	2.92
2013	2.60
2012	2.30
2011	2.12

After underpricing and flotation costs, the firm expects to net$ 52 per share on a new issue. d. Using the constant-growth valuation model, determine the cost of new common stock, $r_n$

Recent balance sheet information for two companies in the food industry, H.J. Heinz Company and The Hershey Company, are as follows (in thousands of dollars):

$$\begin{array}{lrr} & \textbf{H.J. Heinz} & \textbf{Hershey}\\ \hline \text { Net property, plant, and equipment } & \$ 1,998,153 & \$ 1,651,300 \\ \text { Current liabilities } & 2,505,106 & 1,453,538 \\ \text { Long-term debt } & 4,413,641 & 1,248,128 \\ \text { Other long-term liabilities } & 1,272,596 & 486,473 \\ \text { Stockholders' equity } & 1,841,683 & 683,423 \end{array}$$

Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.

Your parents are considering investing in Tootsie Roll Industries common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Fortunately, excerpts from a recent annual report of Tootsie Roll are presented in Appendix A of this textbook.

Instructions

(c) Compute for 2011 and 2010 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders’ equity. How would you evaluate Tootsie Roll’s profitability? Total assets at December 31, 2009, were $836,844,000, and total stockholders’ equity at December 31, 2009, was$654,244,000.

On October 1, Little Bobby Corporation’s stockholders’ equity is as follows.

$$\begin{array}{lc} \text{Common stock, \$5 par value}&\$400,000\\ \text{Paid-in capital in excess of par- common stock}&25,000\\ \text{Retained earnings}&\underline{155,000}\\ \text{Total stockholders' equity}&\underline{\underline{\$580,000}} \end{array}$$

On October 1, Little Bobby declares and distributes a 10% stock dividend when the market price of the stock is $15 per share.

Instructions (a) Compute the par value per share (1) before the stock dividend and (2) after the stock dividend.

Recent balance sheet information for two companies in the food industry, HasH.J. Heinz Companybro and The Hershey Company, is as follows (in thousands of dollars):

a. Determine the ratio of liabilities to stockholders’ equity for both companies. Round to one decimal place.

A number of business transactions carried out by Smalling Manufacturing Company are as follows:
b. Sold land for cash at a price equal to its cost.
Indicate the effects of each of these transactions on the total amounts of the company's assets, liabilities, and owners' equity. Organize your answer in tabular form, using the following column headings and the code letters I for increase, D for decrease, and NE for no effect. The answer for transaction $\mathbf{a}$ is provided as an example:

$$\begin{array}{cccc} \text { Transaction } & \text { Assets } & =\text { Liabilities }+\text { Owners' Equity } \\ \hline \text { (a) } & \text { I } & \text { I } \end{array}$$

The firms HL and LL are identical except for their debt-to-total-assets ratios and interest rates on debt. Each has $20 million in assets, earned $4 million before interest and taxes, and has a 40 percent marginal tax rate. Firm HL, however, has a debt-to-total-assets ratio (D/TA) of 50 percent and pays 12 percent interest on its debt, whereas LL has a 30 percent debt-to-total-assets ratio and pays only 10 percent interest on debt.

Calculate the rate of return on equity (net income/equity) for each firm.

When a person borrows money to buy a house, the secured loan the bank issues is a mortgage. The house serves as the security the bank needs to justify the risk of loaning money. If a homeowner takes out another loan on the same house, the secured loan is a second mortgage. Some homeowners use their homes as collateral to get a home equity loan. In 2006, there were $51,234,170$ houses used as collateral for mortgages or home equity.

How many homeowners have only one loan against their home?

When a person borrows money to buy a house, the secured loan the bank issues is a mortgage. The house serves as the security the bank needs to justify the risk of loaning money. If a homeowner takes out another loan on the same house, the secured loan is a second mortgage. Some homeowners use their homes as collateral to get a home equity loan. In 2006, there were $51,234,170$ houses used as collateral for mortgages or home equity.

How many homeowners have three loans against their home?

In early $2012$, General Electric (GE) had a book value of equity of $\$ 109$ billion, $10.3$ billion shares outstanding, and a market price of $\$ 9.66$ per share. GE also had cash of $\$ 40$ billion, and total debt of $\$ 530$ billion. Three years later, in early $2015$, GE had a book value of equity of $\$ 112$ billion, $10.9$ billion shares outstanding with a market price of $\$ 16.59$ per share, cash of $\$ 85$ billion, and total debt of $\$ 417$ billion. Over this period, what was the change in GE's

a. market capitalization?

b. market-to-book ratio?

c. enterprise value?

The following information is from Harrelson Inc.’s financial statements. Sales (all credit) were $28.50 million for last year.

Fill in the balance sheet:

The current asset section of the Excalibur Tire Company's balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31,2018 , balance sheet revealed the following:

$$\begin{array}{lr}\text { Inventories } & \$ 840,000 \\ \text { Total assets } & \$ 2,800,000 \\ \text { Current ratio } & 2.25 \\ \text { Acid-tetst ratio } & 1.2 \\ \text { Debt to equity ratio } & 1.8\end{array}$$

Required: Determine the following 2018 balance sheet items:

1. Current assets
2. Shareholders' equity
3. Long-term assets
4. Long-term liabilities

Dividend constraints The Howe Company's stockholders' equity account follows:

$$\begin{array}{lr}\text { Common stock (400,000 shares at } \$ 4 \text { par) } & \$ 1,600,000 \\ \text { Paid-in capital in excess of par } & 1,000,000 \\ \text { Retained earnings } & \dfrac{1,900,000}\\ \\ \text { Total stockholders' equity } &{\$ 4,500,000} \\ \end{array}$$

The earnings available for common stockholders from this period's operations are $100,000, which have been included as part of the$1.9 million retained earnings.

b. If the firm has $160,000 in cash, what is the largest per-share dividend it can pay without borrowing?

Indicate whether each of the following transactions increases(+), decreases(-), or has no effect (NE) on total assets, total liabilities, and total stockholders' equity. The first transaction is completed as an example.

$$\begin{matrix} \text{ } & \text{Total} & \text{Total} & \text{Total}\\ \text{Transaction} & \text{Assets} & \text{Liabilities} & \text{Stockholders' Equity}\\ \hline \text{Issue common stock} & \text{$+$} & \text{NE} & \text{$+$}\\ \text{Issue preferred stock} & \text{ } & \text{ } & \text{ }\\ \text{Purchase treasury stock} & \text{ } & \text{ } & \text{ }\\ \text{Sale of treasury stock} & \text{ } & \text{ } & \text{ }\\ \end{matrix}$$