The Holtzman Corporation has assets of $460,000, current liabilities of $56,000,
ID: 2813282 • Letter: T
Question
The Holtzman Corporation has assets of $460,000, current liabilities of $56,000, and long-term liabilities of $154,000. There is $38,000 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 $27,600 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 21 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.)
Explanation / Answer
Answer a.
Book Value of Common Stock = Total Assets - Current Liabilities - Long-term Liabilities - Value of Preferred Stock
Book Value of Common Stock = $460,000 - $56,000 - $154,000 - $38,000
Book Value of Common Stock = $212,000
Book Value per share = Book Value of Common Stock / Number of common stock outstanding
Book Value per share = $212,000 / 20,000
Book Value per share = $10.60
Answer b.
Earnings per share = Earnings available to common stockholders / Number of common stock outstanding
Earnings per share = $27,600 / 20,000
Earnings per share = $1.38
Market Price per share = Earnings per share * P/E Ratio
Market Price per share = $1.38 * 21
Market Price per share = $28.98
Answer c.
Market to Book Value = Market Price per share / Book Value per share
Market to Book Value = $28.98 / $10.60
Market to Book Value = 2.73
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