(This problem is related to P3-9.) Mountain-Pacific Railroad is interested in comparing itself to the rest of the industry. Bob Cleary, the controller, has obtained the following industry averages from a trade journal. (The industry averages were the same for 1996 and 1997.) Return on equity .50 Current ratio 3.10 Quick ratio 1.85 Return on assets .30 Receivables turnover 8.15 Earnings per share ($) 41.15 Price/earnings ratio .451 Debt/equity ratio .77 Return on sales .072 Financial leverage .20 Dividend yield .375 Return on investment .102 Times-interest-earned ratio 9.89 Inventory turnover 21.7 REQUIRED:

a. Compute these ratios for Mountain-Pacific Railroad for both 1996 (using year-end bal¬ ances) and 1997 (using average balances where appropriate). Identify significant trends. Could the company experience solvency problems? Explain.

b. Compare the ratios of Mountain-Pacific Railroad to the industry averages. Do you think that Mountain-Pacific Railroad is doing better, worse, or the same as the industry? Explain your answer, and be as specific as possible.