Question

Brown Fashions Inc.'s December 31, 2018 balance sheet showed total common equity of $3,750,000 and 250,000 shares of stock outstanding. During 2019, the firm had $750,000 of net income, and it paid out $500,000 as dividends. What was the book value per share at 12/31/19, assuming no common stock was either issued or retired during 2019?

Answer 1

$16

Step-by-step explanation:

Book Value of Equity = Value of complete equity/no of equity shares

Value of equity share as on 31 Dec 2019 = $3,750,000 + Net income - Dividend

= $3,750,000 + $750,000 - $500,000 = $4,000,000

Net income is a part of common equity, but dividend paid is not part of common equity as dividend paid reduces company's assets as cash or bank balance is reduced.

Provided there is no further issue of common stock and also no common stock is retired. Therefore number of shares = 250,000

Book value per share = $4,000,000/250,000 = $16

$16