Brown Fashions Inc.'s December 31, 2017 balance sheet showed total common equity of $4,050,000 and 195,000...

Brown Fashions Inc.'s December 31, 2017 balance sheet showed total common equity of $4,050,000 and 195,000 shares of stock outstanding. During 2018, the firm had $450,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/18, assuming no common stock was either issued or retired during 2018? (Round your final answer to two decimal places.)

a. $21.66

b. $23.24

c. $19.86

d. $26.17

e. $22.56

Solutions

Expert Solution

Solution:

As per the information given in the question we have

As on December 31, 2017

Total common equity = $4,050,000

Number of shares of stock outstanding = 195,000

During 2018,

Net Income earned = $ 450,000

Dividends paid = $ 100,000

Number of shares of stock outstanding as on 12/31/18 = 195,000

(Since no common stock was either issued or retired during 2018 )

Total equity as on 12/31/18 is calculated as

= Total Common equity as on 12/31/17 + Net Income earned during 2018 – Dividends paid during 2018

Applying the above values in formula we have

= $ 4,050,000 + $ 450,000 - $ 100,000 = $ 4,400,000

Thus common equity as on 12/31/18 = $ 4,400,000

The formula for calculating the Book value per share as on 12/31/18 is

= Total common equity as on 12/31/18 / No. of shares of stock outstanding

= $ 4,400,000 / 195,000 = $ 22.56

Thus the Book value per share as on 12/31/18 = $ 22.56

Thus the solution is Option e. $ 22.56

jeff jeffy answered 11 months ago

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