In: Accounting
The Balance sheet for a company shows a book value of stockholders equity (book value per share x total shares outstanding) of $23,500,000. Furthermore, the firm's income statement for the year just ended has net income of $500,000, which is $0.25 per share of common stock outstanding. the P/E ratio for firm similar to this company is 20.
Q1. What price would you expect this company share to sell for
Q2. what is the book value per share for this company
Answer 1. As P/E Ratio for similar company given as 20. So P/E Ratio of this company is same as similar company that is 20.
P/E Ratio = Market price per share / Earning per share
20 = Market price per share / $0.25
Market price per share = 20 * $ 0.25
Market price per share = $ 5
So the expected market price is $ 5.
Answer 2. Total shares outstanding = Total earnings / Earning per share
= $ 500,000 / $ 0.25
Total shares outstanding = $ 2,000,000
Book value per share = Book value of stockholders equity / Total shares outstanding
= $ 23,500,000 / $ 2,000,000
Book value per share = $ 11.75