Question

The Holtzman Corporation has assets of $444,000, current liabilities of $51,000, and long-term liabilities of $71,000. There is $35,500 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 $25,700 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 19 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 1

(a)-Book value (net worth) per share

Book value (net worth) per share = Total Common stockholders Equity / Number of common shares outstanding

= [Total Assets – Current Liabilities - long-term liabilities – Preferred stock] / Number of common shares outstanding

= [$444,000 - $51,000 - $71,000 - $35,500] / 20,000 Common shares outstanding

= $286,500 / 20,000 Common shares outstanding

= $14.33 per share

(b)-Current price of the stock

Earnings per share = Earnings available to common stockholders / Number of common shares outstanding

= $25,700 / 20,000 Common shares outstanding

= $1.2850 per share

Therefore, the Current price of the stock = Earnings per share x P/E Ratio

= $1.2850 per share x 19 Times

= $24.42 per share

(c)-Ratio of market value per share to book value per share

Ratio of market value per share to book value per share = Current price of the stock / Book value (net worth) per share

= $24.42 per share / $14.33 per share

= 1.70 Times