· Complete the following problems (Do Not repeat the questions):
1. The Monley Corporation of New Jersey has gross profits of $980,000 and $260,000 in depreciation expense. The Majors Corporation of Nebraska also has $980,000 in gross profit, with $60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company.
Compute the cash flow for both companies with a tax rate of 40%. Explain the difference in cash flow between the two firms.
2. Assume Ford Motors had earnings after taxes of 460,000 in 2009 with 200,000 shares of stock outstanding. The stock price was $42.50. In 2010, earnings after taxes increase to $650,000 with the same 200,000 shares outstanding. The stock price was $70.00.
a. Compute earnings per share and the P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings per share.
b. Compute earnings per share and the P/E ratio for 2010.
c. Give a general explanation of why the P/E changed.
3. Assume for Ford Motors discussed in Problem 2, that in 2010, earnings after taxes declined to $300,000 with the same 200,000 shares outstanding. The stock price declined to $50.00.
a. Compute earnings per share and the P/E ratio for 2010.
b. Give a general explanation of why the P/E changed.
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