Acc423 Intermediate Accounting: E15-19 Shown below is the liabilities and stockholders' equity

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Acc423 Intermediate Accounting

E15-19 Comparison of Alternative Forms of Financing
Shown below is the liabilities and stockholders' equity section of the balance sheet for Ingalls Company and Wilder Company. Each has assets totaling $4,200,000.
Ingalls Co. Wilder Co.
Current liabilities 300,000 Current liabilities 600,000
Long-term debt, 10% 1,200,000 Common stock ($20 par) 2,900,000
Common stock ($20 par) 2,000,000 Retained earnings (Cash dividends, $328,000) 700,000
Retained earnings (Cash dividends,$220,000) 700,000
4,200,000 4,200,000

For the year each company has earned the same income before interest and taxes. Ingalls Co. Wilder Co.
Income before interest and taxes 1,200,000 1,200,000
Interest expense 120,000 -
1,080,000 1,200,000
Income taxes (40%) 432,000 480,000
Net income 648,000 720,000

At year end, the market price of Ingall's stock was $101 per share, and Wilder's was $63.50. Assume balance sheet amounts are representative for the entire year.

Instructions:
a. Which company is more profitable in terms of return on total assets?
b. Which company is more profitable in terms of return on stockholders' equity?
c. Which company has the greater net income per share? Neither company issued or reacquired shares during the year.
d. From the point of view of net income, is it advantageous to the stockholders of Ingalls Co. to have the long-term debt outstanding? Why?
e. What is the book value per share for each company?
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