In: Finance
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.)
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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