Shown below is the liabilities and stockholders equity section of the balance sheet for Istar Company and

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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Istar Co. Honey DeW, Inc. $100,000 Current liabilities Current liabilities Long-term debt, 10% Common stock ($10 par) Retained earnings (Cash $ 100,000 600,000 300,000 400,000 200,000 Common stock ($10 par) Retained earnings (Cash dividends, $48,000) 300,000 dividends, $60,000) $1,000,000 $1,000,000 Istar Co. Honey Dew, Inc. $200,000 40,000 160,000 64,000 $96,000 $200,000 200,000 $120,000 Income before interest and taxes Interest expense Income taxes (40%) Net income 80,000