Question

Wildcat Corporation recently disclosed the following financial​ information: ​

Earnings/revenue ​$2 comma 279 comma 093

Assets ​$9 comma 800 comma 000

Liabilities ​$1 comma 642 comma 288

Shares outstanding 686 comma 880

Market price ​$30.00 per share

Calculate the​ price-to-book ratio, the​ price/earnings ratio, and the book value per share for each of the following separate​ scenarios:

a. Based on current information

b. Earnings fall to ​$1 comma 519 comma 395

c. Liabilities increase to ​$3 comma 107 comma 971

d. The company does a​ three-for-one stock split with no change in market capitalization

e. The company repurchases 20 percent of the outstanding​ stock, incurring additional liability to finance the purchase.

Answer 1

a) Book Value per share = Equity Value / No. of shares = (Assets - Liabilities) / Shares = (9,800,000 - 1,642,288) / 686,880 = $11.88

P/B = Market Price / Book Value = 30 / 11.88 = 2.52

EPS = Earnings / Shares = 2,279,093 / 686,880 = $3.32

P/E = Price / EPS = 30 / 3.32 = 9.04

b) Book Value and P/B remains same

EPS = 1,519,395 / 686,880 = 2.21

P/E = 30 / 2.21 = 13.57

c) P/E remains same.

Book Value = (9,800,000 - 3,017,971) / 686,880 = 9.87

P/B = 30 / 9.87 = 3.04

d) P/E, P/B remains same as price decreases by 3 and no. of shares increases by 3.

Book Value = (9,800,000 - 1,642,288) / (686,880 x 3) = 3.96