Final answer:
The expected selling price for Underwood Motors shares is approximately $5.53, calculated using the price-earnings ratio and net income per share. The book value per share is around $0.744, found by dividing the total book value of stockholders' equity by the total number of shares outstanding.
Step-by-step explanation:
To estimate the expected selling price of Underwood Motors shares, we can use the price-earnings ratio (P/E ratio). Given that the net income per share is $0.276 and the P/E ratio for similar firms is 20.04, we can calculate the expected price by multiplying these two numbers:
Expected share price = Net income per share × P/E ratio
Expected share price = $0.276 × 20.04
Expected share price = $5.53104
To find the book value per share of Underwood Motors, we need to divide the total book value of stockholders' equity by the total number of shares outstanding:
Book value per share = Total book value of stockholders' equity / Total shares outstanding
Since the total book value is given as $1,348,000 and net income per share is $0.276, we can find the number of shares by dividing the net income by the net income per share:
Total shares outstanding = $500,000 / $0.276
Total shares outstanding = 1,811,594 (rounded to the nearest whole number)
Book value per share = $1,348,000 / 1,811,594
Book value per share = $0.744