BBC Company has assets of $7.400.000 current liabilities of $3.800.000 and long
ID: 2735736 • Letter: B
Question
BBC Company has assets of $7.400.000 current liabilities of $3.800.000 and long term liabilities of $1.200.000. There is $1.200.000 in preferred stock outstanding; $400.000 shares of common stock have been issued.
A- Compute book value per share. (net worth)
B- if there is $860.000 in earnings available to common stockholders and BBC's stock has a P/E of 12 times earnings per share, what is the current price of the stock?
C. What is the ratio of the market value per share to book value per share?
Explanation / Answer
A.
Compute the book value per share:
= (Long term liabilities + Common stock- Preferred stock) / Number of shares
= $1,200,000 / 400,000
= $3
B.
Calculate the current price of the stock:
= ($860,000 /400,000) *12 times
= 2.15 *12 times
= $25.80
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