Question

You are given the following information for Smashville, Inc.

Cost of goods sold:	$224,000
Investment income:	$2,400
Net sales:	$389,000
Operating expense:	$90,000
Interest expense:	$7,400
Dividends:	$15,000
Tax rate:	21	%

Current liabilities:	$24,000
Cash:	$21,000
Long-term debt:	$24,000
Other assets:	$40,000
Fixed assets:	$136,000
Other liabilities:	$5,000
Investments:	$44,000
Operating assets:	$37,000

During the year, Smashville, Inc., had 24,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Solution :-

Net income

= [(Net sales + investment income) - (cost of goods sold + operating expense + interest expense)] x (1 - tax rate)

= [($389000 + $2400) - ($224000 + $90000 + $7400)] x (1 - 0.21)

= [$391400 - $321400] x 0.79

= $70000 x 0.79 = $55300

Book value

= (Cash + Other assets + Fixed assets + Investments + Operating assets) - (Current liabilities + Long term debt + Other liabilities)

= ($21000 + $40000 + $136000 + $44000 + $37000) - ($24000 + $24000 + $5000)

= $278000 - $53000 = $225000

Now,

Book value per share = Book value/shares outstanding

= $225000/24000 shares = $9.38 per share

Earnings per share = Net income/shares outstanding

= $55300/24000 shares = $2.30 per share

Cash flow per share = (Net income + Depreciation expense)/shares outstanding

= ($55300 + $15000)/24000 shares

= $70300/24000 shares = $2.93

Note: It is assumed that depreciation expense is included in the operating expense.