P18-6A Assume that you are purchasing an investment and have decided to invest in a com- pany in the automotive supply business. You have narrowed the choice to Bowie, Inc., and Drane Corp. and have assembled the following data. Selected income statement data for current year: Bowie, Inc. Drane Corp. Current assets: Cash Short-term investments. Current receivables, net. Inventories.... Prepaid expenses Total current assets $ 19.000 18.000 $ 22,000 20,000 46.000 42,000 100,000 87.000 3,000 2,000 186.000 173.000 Total assets... 328,000 265,000 Total current liabilities. 98.000 108,000 Total liabilities.. 131,000* 108.000- Preferred stock: 5%. $100 par. 20.000 Common stock. S1 par (10.000 shares) 10,000 $2 par (6,000 shares) 12.000 Total stockholders' equity..... 197.000 157,000 Market price per share of common stock. $81.50 $45 *Notes payable: Bowie. $86.000 Drane. S. 1,000 Selected balance sheet data at beginning of current year: Bowie, Inc. Drane Corp. Current receivables. net. $ 48.000 Inventories 88.000 Total assets. 270.000 $ 40.000 93,000 259,000 Preferred stock. 5%. $100 par. 20.000 Common stock. $1 par (10,000 shares) $2 par (6.000 shares) 10.000 12.000 Total stockholders' equity.. 126.000 118.000 Your investment strategy is to purchase the stocks of companies that have low price/earnings ratios but appear to be in good shape financially. Assume that you have analyzed all other factors and your decision depends on the results of the ratio analysis to be performed. Required 1. Compute the following ratios for both companies for the current year, and decide which company's stock better fits your investment strategy.

a. Current ratio

b. Acid-test ratio

c. Inventory turnover

d. Times-interest-carned ratio

e. Return on common stockholders' equity

f. Earnings per share of common stock g. Book value per share of common stock h. Price/earnings ratio 2. Compute each company's economic-value-added (EVA) measure, and determine whether their EVAs confirm or alter your investment decision. Each company's cost of capital is 13.5%. Round all amounts to the nearest $1.000.