ASSIGNMENT

Exercise 1:

Using ratios to decide between two stock investments

Assume that you are purchasing an investment and have decided to invest in a

company in the digital phone business. You have narrowed the choice to Digital

Plus Corp. and Red Zone, Inc. and have assembled the following data.

Selected income statement data for the current year:

Digital Plus Red Zone Net Sales (all on credit 1 416.830 5 497.130 Cost of Goods Sold 207.000 259.000 Interest Expense 17,000 Net Income 54.000 76,000Digital Plus Red Zone Current Assets: Cash $ 24,000 15,000 Short-term Investments 37.000 14.000 Accounts Receivable, Net 38/000 16.000 Merchandise Inventory 65,000 99.000 Prepaid Expenses 17,000 14,000 Total Current Assets $ 181,000 $ 188.000 Total Assets $ 263/000 OOO VEE $ Total Current Liabilities 102.000 95.000 Total Liabilities 102,000 132.000 Common Stock, $1 par (10,000 shares) 101000 $2 par (16.000 shares) 32.000 Total Stockholders' Equity 161,000 192.000 Market Price per Share of Common Stock 86 40 $ 104.50 Dividends Paid per Common Share 1.20 1/00Digital Plus Red Zone Balance Sheet: Accounts Receivable, Net 3 42,000 1 51,000 Merchandise Inventory 81,000 60 0 00 Tolal Asels 259,000 275,000 Common Stock, $1 par (10,000 shares) 10.000 32 par (16,000 share:) 32,000