Final answer:
The book value per share of Holtzman Corporation is $10.50. Given the earnings and P/E ratio, the current stock price is estimated to be $19.80 per share. The ratio of market value per share to book value per share is 1.8857.
Step-by-step explanation:
The student has inquired about calculating the book value per share for Holtzman Corporation, the price of its stock based on its price-to-earnings ratio, and the ratio of the market value per share to the book value per share. First, we'll start with the book value, which can be found by the following:
- Total Assets: $400,000
- Total Liabilities (Current + Long-term): $50,000 + $100,000 = $150,000
- Amount in Preferred Stock: $40,000
- Number of Common Shares Issued: 20,000
Next, to compute the book value per share, we calculate the equity available to common shareholders by subtracting total liabilities and preferred stock from total assets. Then, we divide that equity by the number of common shares issued:
Equity = Assets - (Current Liabilities + Long-term Liabilities + Preferred Stock) = $400,000 - ($150,000 + $40,000) = $210,000
Book Value per Share = Equity / Number of Common Shares = $210,000 / 20,000 = $10.50 per share
For part b, earnings available to common stockholders are $22,000. To find the earnings per share (EPS), divide this amount by the number of shares:
Earnings Per Share = $22,000 / 20,000 = $1.10 per share
Given the P/E ratio of 18, the current stock price can be calculated as:
Stock Price = P/E Ratio * EPS = 18 * $1.10 = $19.80 per share
Finally, for part c, the ratio of market value per share to book value per share is calculated by dividing the stock price by the book value per share:
Market to Book Ratio = Stock Price / Book Value per Share = $19.80 / $10.50 = 1.8857