The Balance sheet for a company shows a book value ofstockholders equity (book value per...

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

Solutions

Expert Solution

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

ekkarill92 answered 2 years ago

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