"15. Elite Trailer Parks has an operating profit or $200,000. Interest expense for the year was$10,000; preferred dividends paid were $18,750; and common dividends paid were$30,000. The tax was $61,250. The firm has 20,000 shares of common stock outstanding. a. Calculate the earnings per share and the common dividends per share for Elite TrailerParks. b. What was the increase in retained earnings for the year?2-15. Solution:Elite Trailor Parksa. Operating profit (EBIT) .......................................... $200,000Interest expense ..................................................10,000 Earnings before taxes (EBT) ................................... $190,000Taxes...................................................................61,250 Earnings after taxes (EAT) ..................................... $128,750Preferred dividends .............................................18,750 Available to common stockholders ......................... $110,000Common dividends.............................................30,000 Increase in retained earnings ................................... $80,000Earnings Available to Common Stockholders Number of Shares of Com. Stock Outstanding = $110,000/20,000 shares = $5.50 per share Dividends per Share = $30,000/20,000 shares= $1.50 per shareb. Increase in retained earnings = $80,000S2-21 16. Johnson Alarm Systems had $800,000 of retained earnings on December 31, 2008. Thecompany paid common dividends of $60,000 in 2008 and had retained earnings of$640,000 on December 31, 2007. How much did Johnson earn during 2008, and whatwould earnings per share be if 50,000 shares of common stock were outstanding?2-16. Solution:Johnson Alarm SystemsRetained earnings, December 31, 2008 ......................... $800,000Less: Retained earnings, December 31, 2007 ................ 640,000Change in retained earnings.................................. $160,000Add: Common stock dividends ..................................... 60,000Earnings available to common stockholders ................. $220,000Earnings per share$220,000 = = $4.40 per share 50,000 shares S2-22 17. Mozart Music Co. had earnings after taxes of $560,000 in 2008 with 200,000 shares ofstock outstanding. The stock price was $58.80. In 2009, earnings after taxes increased to$650,000 with the same 200,000 shares outstanding. The stock price was $78.00a. Compute earnings per share and the P/E ratio for 2008.The P/E ratio equals the stock price divided by earnings per share. b. Compute earnings per share and the P/E ratio for 2009. c. Give a general explanation of why the P/E changed.2-17. Solution:Mozart Music Co.$560,000 =$2.80a. EPS (2008) = 200,000 58.80 = 21XP/E Ratio (2008) =Price/EPS= $2.80 $650,000 =$3.25b. EPS (2009) = 200,000 $78.80= 24XP/E Ratio (2009) =Price/EPS = $3.25 c. The stock price increased by 34% while EPS only increased16.1%.S2-23 18. Assume for Mozart Music Co. discussed in Problem 17, that in 2010, earnings after taxesdeclined to $300,000 with the same 200,000 shares outstanding. The stock price declined to$54.00. a. Compute earnings per share and the P/E ratio for 2010. b. Give a general explanation of why the P/E changed. You might want to consult thetextbook to explain this surprising result. 2-18. Solution:Mozart Music Co. (continued)$300,000 a. EPS (2010) = = $1.50 200,000 $54.00P/E Ratio (2010) =Price/EPS = = 36X $1.50 b. As explained in the text, when EPS drop rapidly, the stockprice might not decline as much, and the P/E ratio rises.A higher P/E ratio under adverse conditions is not a positive.S2-24 19. Identify whether each of the following items increases or decreases cash flow:Increase in accounts receivable Decrease in prepaid expensesIncrease in notes payable Increase in inventoryDepreciation expense Dividend paymentIncrease in investments Increase in accrued expensesDecrease in accounts payable2-19. Solution: Increase in accounts receivable? decreases cash Increase in notes payable? increases cash flowDepreciation expense? increases cash flow (s Increase in investments? decreases cash flow (u Decrease in accounts payable ? decreases cash flDecrease in prepaid expense ? increases cash Increase in inventory ? shd fle ow cre( aus see s)ca Dividend payment? decreases cash flow (use) Increase in accrued expenses ? increases cash S2-25 "