Chapter 2: Q25BP (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

$\begin{array}{rcl} Total liability & = & Current liability - Long - term liabilities \\ = & $ 192, 000 + $ 154, 000 \\ = & $ 346, 000 \end{array}$

Book value per share of the company

$\begin{array}{rcl} Book Value per share & = & \frac{Total assets - Total liabilities}{No of shares} \\ = & \frac{$ 889, 000 - $ 346, 000}{30, 000} \\ = & $ 18.10 \end{array}$

EPS of the company

$\begin{array}{rcl} EPS & = & \frac{Earning available from shareholders}{No . of outstanding share} \\ = & \frac{$ 56, 000}{30, 000} \\ = & $ 1.88 \end{array}$

Current market price of the company

$\begin{array}{rcl} MPS & = & P / E Ratio \times EPS \\ = & 23 \times $ 1.88 \\ = & $ 43.24 \end{array}$

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

$\begin{array}{rcl} Ratio & = & \frac{MPS}{BVPS} \\ = & \frac{$ 43.24}{$ 18.10} \\ = & 2.39 \end{array}$

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Sales	$900,000
Shares outstanding	50,000
Cost of goods sold	400,000
Interest expenses	40,000
Selling and administration expenses	60,000
Depreciation expenses	20,000
Preferred stock dividend	80,000
Taxes	50,000

Cash	\)163,000
Accounts receivable	889,000
Inventory	411,000
New plant and equipment	520,000
Total assets	$1,983,000

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

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

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