The Holtzman Corporation has assets of $430,000, current
liabilities of $83,000, and long-term liabilities of $149,000.
There is $33,600 in preferred stock outstanding; 20,000 shares of
common stock have been issued.
a. Compute book value (net worth) per share.
(Round your answer to 2 decimal places.)
b. If there is $28,500 in earnings available to
common stockholders, and Holtzman’s stock has a P/E of 15 times
earnings per share, what is the current price of the stock?
(Do not round intermediate calculations. Round your final
answer to 2 decimal places.)
c. What is the ratio of market value per share to
book value per share? (Do not round intermediate
calculations. Round your final answer to 2 decimal places.)
Answer a.
Book Value of Common Stock = Total Assets - Current Liabilities
- Long-term Liabilities - Value of Preferred Stock
Book Value of Common Stock = $430,000 - $83,000 - $149,000 -
$33,600
Book Value of Common Stock = $164,400
Book Value per share = Book Value of Common Stock / Number of
common stock outstanding
Book Value per share = $164,400 / 20,000
Book Value per share = $8.22
Answer b.
Earnings per share = Earnings available to common stockholders /
Number of common stock outstanding
Earnings per share = $28,500 / 20,000
Earnings per share = $1.425
Market Price per share = Earnings per share * P/E Ratio
Market Price per share = $1.425 * 15
Market Price per share = $21.38
Answer c.
Market to Book Value = Market Price per share / Book Value per
share
Market to Book Value = $21.38 / $8.22
Market to Book Value = 2.60
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