Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $700,000 long-term loan from Gulfport State Bank, $200,000 of which will be used to bolster the Cash account and $500,000 of which will be used to modernize equipment. The companys financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 150,000 $ 350,000 Marketable securities 0 17,000 Accounts receivable, net 737,000 500,000 Inventory 1,145,000 795,000 Prepaid expenses 38,000 42,000 Total current assets 2,070,000 1,704,000 Plant and equipment, net 2,300,800 1,530,000 Total assets $ 4,370,800 $ 3,234,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 900,000 $ 420,000 Bonds payable, 12% 900,000 900,000 Total liabilities 1,800,000 1,320,000 Stockholders' equity: Common stock, $20 par 890,000 890,000 Retained earnings 1,680,800 1,024,000 Total stockholders equity 2,570,800 1,914,000 Total liabilities and equity $ 4,370,800 $ 3,234,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 6,000,000 $ 4,950,000 Cost of goods sold 4,075,000 3,650,000 Gross margin 1,925,000 1,300,000 Selling and administrative expenses 693,000 588,000 Net operating income 1,232,000 712,000 Interest expense 108,000 108,000 Net income before taxes 1,124,000 604,000 Income taxes (30%) 337,200 181,200 Net income 786,800 422,800 Common dividends 130,000 109,000 Net income retained 656,800 313,800 Beginning retained earnings 1,024,000 710,200 Ending retained earnings $ 1,680,800 $ 1,024,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Assume that Paul Sabin has asked you to assess his companys profitability and stock market performance. Required: 1. You decide first to assess the companys stock market performance. For both this year and last year, compute: a. The earnings per share. There has been no change in common stock over the last two years. (Round your answers to 2 decimal places.) b. The dividend yield ratio. The companys stock is currently selling for $60 per share; last year it sold for $50 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) c. The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) d. The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.) e. The book value per share of common stock. (Round your answers to 2 decimal places.) 2. You decide next to assess the companys profitability. Compute the following for both this year and last year: a. The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) b. The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) c. The return on total assets. (Total assets at the beginning of last year were $3,194,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) d. The return on equity. (Stockholders equity at the beginning of last year was $1,904,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) e. Is the companys financial leverage positive or negative? Positive Negative