Answer Happy

Selected financial information about two competing companies Lawn Care and Ace Hardware, are shown as follows: Lawn Care Ace Hardware 250 120 9 26 Pre-tax income ($ million) Annual common dividends paid ($ million) Annual preferred dividends paid ($ million) Number of common shares outstanding (millions) Current market price per share ($) 12 18 10 13 75 55 Analysts forecasts also reveal that the earnings of Lawn Care and Ace Hardware are expected to grow next year by 15% and 50%, respectively. Corporate income tax is 20%. Required: Analyze the following to evaluate the two companies' relative performance. For (1) below, express your answers as percentages with three decimal places; for (2) and (3) below, keep your answers with two decimal places. a) Calculate the dividend yield for each company. (6 marks) b) Calculate the earnings per share (EPS) for each company. (6 marks) c) Explain what a price-earnings (P/E) ratio typically measures and calculate the P/E ratio for each company. (6 marks) d) Based on your analysis above, which company would you recommend for investing purpose? Why? (7 marks)