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 $570,000 long-term loan from Gulfport State Bank, $135,000 of which will be used to bolster the Cash account and $435,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year $ 98,000 568,000 1,015,000 26,000 1,707,000 1,686,200 $ 3,393,200 $ 220,000 25,000 370,000 665,000 29,000 1,309,000 1,400,000 $ 2,709,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $20 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ 835,000 600,000 1,435,000 500,000 600,000 1,100,000 760,000 1,198,200 1,958, 200 $ 3,393,200 760,000 849,000 1,609,000 $ 2,709,000 Las 560.000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,350,000 Cost of goods sold 3,945,000 Gross margin 1,405,000 Selling and administrative expenses 667,000 Net operating income 738,000 Interest expense 72,000 Net income before taxes 666,000 Income taxes (30%) 199,800 Net income 466, 200 Common dividends 117,000 Net income retained 349,200 Beginning retained earnings 849,000 Ending retained earnings $ 1,198,200 Last Year $4,560,000 3,520,000 1,040,000 562,000 478,000 72,000 406,000 121,800 284, 200 96,000 188, 200 660,800 $ 849,000 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 Paul Sabin has asked you to assess his company's profitability and stock market performance. Required: 1. You decide first to assess the company's 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. b. The dividend yield ratio. The company's stock is currently selling for $60 per share; last year it sold for $45 per share. c. The dividend payout ratio. d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 9) e. The book value per share of common stock. 2. You decide next to assess the company's profitability. Compute the following for both this year and last year: a. The gross margin percentage. b. The net profit margin percentage. c. The return on total assets. (Total assets at the beginning of last year were $2,510,000.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,599,000.) e. Is the company's financial leverage positive or negative