Chapter 2: 25BP (page 52)

Amigo Software Inc. has total assets of $889,000, current liabilities of$192,000, and long-term liabilities of $154,000. There is $87,000 in preferredstock outstanding. Thirty thousand shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $56,300 in earnings available to common stockholders and the
firm’s stock has a P/E of 23 times earnings per share, what is the currentprice of the stock?
c. What is the ratio of market value per share to book value per share? (Round
to two places to the right of the decimal point.)

Short Answer

Expert verified

a. The book value per share is$18.10.

b. Current price of the stock is $43.24.

c. Ratio of market value per share to book value per share is 2.39.

Step by step solution

Total liability of the company

$T o t a l l i a b i l i t y = C u r r e n t l i a b i l i t y - L o n g - t e r m l i a b i l i t i e s = $ 192, 000 + $ 154, 000 = $ 346, 000$

Book value per share of the company

$B o o k V a l u e p e r s h a r e = \frac{T o t a l a s s e t s - T o t a l l i a b i l i t i e s}{N o o f s h a r e s} = \frac{$ 889, 000 - $ 346, 000}{30, 000} = $ 18.10$

EPS of the company

$E P S = \frac{E a r n i n g a v a i l a b l e f r o m s h a r e h o l d e r s}{N o . o f o u t s \tan d i n g s h a r e} = \frac{$ 56, 000}{30, 000} = $ 1.88$

Current market price of the company

$M P S = P / E R a t i o \times E P S = 23 \times $ 1.88 = $ 43.24$

Ratio of market value per share (MPS) to book value per share (BVPS) of the company

$R a t i o = \frac{M P S}{B V P S} = \frac{$ 43.24}{$ 18.10} = 2.39$

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

	20X1	20X2
Sales	\(8,000,000	\)10,000,000
Cost of goods sold	6,000,000	9,000,000
Inventory	800,000	1,000,000

Short Answer

Step by step solution

Total liability of the company

Book value per share of the company

EPS of the company

Current market price of the company

Ratio of market value per share (MPS) to book value per share (BVPS) of the company

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Business Development

Change Management

Business Case Studies

Introduction to Business

Operational Management

Intermediate Accounting

Study anywhere. Anytime. Across all devices.