ix. Prepare the journal entry to record the 20X3 purchase of treasury stock. x. Recalculate 20X3 earnings per share, 20X3 current ratio, and 20X3 debt-to-assets assuming Corporation A never purchased treasury stock (i.e., has zero treasury stock at year-end 20X3), and instead left the monies in cash. a. Assume that management made a bold prediction to investors at year-end 20X2 that 20X3 EPS would be a minimum of $6.50 and that this would confirm the strong growth rate experienced by Corporation A. At the same time, a member of Corporation As board of directors complained about the use of capital to purchase Treasury Stock and said that management should reinvest the monies back into Corporation A. Clearly, management believes that the purchase of treasury stock over the past three years increased shareholder value. Required: Who is correctmanagement or the member of the board? Use quantitative data to support your answer.

Add header Corporation A Common Stock: The firm has 400,000 shares authorized and 100,000 shares issued at year-end 20X1, 20X2, and 20X3. Treasury Stock: The firm purchased 1,000 shares of treasury stock at year-end 20X1, 12,000 at year-end 20X2, and 20,000 at year-end 20X3. Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year- end 20X1, $42 at year-end 20X2, and $55 at year-end 20X3. O Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year- For valuation purposes, industry experts use the dividend valuation model to value the common equity interest of industry firms. Potential investors' required rate of return for this firm is 14%; growth rate is 13% for 20X4 and 20X5, and then declines to 12% for all later years. Market Returns: The stock returns for the market as a whole were as follows: 15.7% in 20X1, 8.2% in 20X2, and 12.1% in 20X3. Return on Equity Dividend Payout Return on Assets Return on Sales Asset Turnover Current Ratio Quick Ratio Debt/Assets Accounts Receivable Days Inventory Days Accounts Payable Days Summary: Cash Conversion Days 20X3 0.27 0.18 0.10 0.11 0.92 1.39 0.75 0.70 26.40 60.91 25.59 61.71 20X2 0.19 0.15 0.09 0.12 0.77 3.46 2.46 0.53 27.11 70.23 31.73 65.61 20X3/20X2 Industry 0.14 0.10 0.10 0.11 1.02 2.35 1.75 0.35 19.50 41.50 28.40 32.60 Add header Corporation A Common Stock: The firm has 400,000 shares authorized and 100,000 shares issued at year-end 20X1, 20X2, and 20X3. Treasury Stock: The firm purchased 1,000 shares of treasury stock at year-end 20X1, 12,000 at year-end 20X2, and 20,000 at year-end 20X3. Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year- end 20X1, $42 at year-end 20X2, and $55 at year-end 20X3. O Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year- For valuation purposes, industry experts use the dividend valuation model to value the common equity interest of industry firms. Potential investors' required rate of return for this firm is 14%; growth rate is 13% for 20X4 and 20X5, and then declines to 12% for all later years. Market Returns: The stock returns for the market as a whole were as follows: 15.7% in 20X1, 8.2% in 20X2, and 12.1% in 20X3. Return on Equity Dividend Payout Return on Assets Return on Sales Asset Turnover Current Ratio Quick Ratio Debt/Assets Accounts Receivable Days Inventory Days Accounts Payable Days Summary: Cash Conversion Days 20X3 0.27 0.18 0.10 0.11 0.92 1.39 0.75 0.70 26.40 60.91 25.59 61.71 20X2 0.19 0.15 0.09 0.12 0.77 3.46 2.46 0.53 27.11 70.23 31.73 65.61 20X3/20X2 Industry 0.14 0.10 0.10 0.11 1.02 2.35 1.75 0.35 19.50 41.50 28.40 32.60