As a stockholder in Bozo Oil Company, you receive its annual report. In the fina

Question

As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $15 million, liabilities of $10 million, after-tax earnings of $3 million, and 819,000 outstanding shares of common stock (a) Calculate the earnings per share of Bozo Oil's common stock. (Round your answer to 2 decimal places.) Earnings per share (b) Assume a share of Bozo Oil's common stock has a market value of $40, what is the firm's price-earnings ratio? (Round your intermediate calculation to 2 decimal places and final answer to the nearest whole number.) (c) Calculate the book value of a share of Bozo Oil's common stock. (Round your answer to 2 decimal places.) Book value per share

Explanation / Answer

a. After-tax earnings 3000000 No.of common stock shares O/s 819000 Earnings Per Share= After-tax earnings/NO.of Common stock shares o/s 3000000/819000= ANSWER: EPS---3.66/Share 3.66 b. Price Earnings Ratio= Market price per share/Earnings per share ie. MPS/EPS= 40/3.66= 10.93 c. Book value per share Total value of Equity/No.of common stock shares o/s (2000000+3000000)/819000= 6.11 (Answer: BV/ Share = 6.11 Note: Equity=Total assets-Total liabilities 15 mln.-10 mln.=5 mln. OR ; Current year after-tax earnings 3000000 Prior equity(5 mln.-3 mln.) 2000000 Total equity 5000000

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