Question

An analyst gathers the following information about Meyer, Inc.: Meyer has 1,000 shares of 8% cumulative preferred stock outstanding, with a par value of $100 and liquidation value of $110. Meyer has 20,000 shares of common stock outstanding, with a par value of $20. Meyer had retained earnings at the beginning of the year of $5,000,000. Net income for the year was $70,000. This year, for the first time in its history, Meyer paid no dividends on preferred or common stock. a. Calculate the total book value of Meyer's common stock. Total book value $ b. What is the book value per share of Meyer's common stock? (Round your answer to 2 decimal places.) Book value per share $

Answer 1

a. The total book value of Meyer's common stock is $5,470,000

b. The book value per share of Meyer's common stock is $273.50

Step-by-step explanation:

a. In order to calculate the total book value of Meyer's common stock we would have to use the following formula:

Book value of equity=Par value of share+Retained Earnings+Net Income

Par value of the equity=20,000 shares×20=$400,000

Retained earnings=$5,000,000

Net income=$70,000

Book value of equity=$400,000+$5,000,000+$70,000

Book value of equity=$5,470,000

The total book value of Meyer's common stock is $5,470,000

b. In order to calculate the book value per share of Meyer's common stock we would have to use the following formula:

Book value per share=book value of equity

No. of common stock

book value per share=$5,470,000

20,000

book value per share=$273.50

The book value per share of Meyer's common stock is $273.50

Answer 2

Book value of common stock is $5,470,000

book value per share of common stock is $273.50

Step-by-step explanation:

The book value of Meyer Inc's common stock comprises of the book value of total common stock plus the retained earnings as well as the net income for the year.No preferred dividends need be deducted because the company did not declare any dividends in the year under review.

The book value per share is the total book value arrived at using the approach above divided by the number of common stock outstanding.

Book value of common stock=(20,000*$20)+$5,000,000+$70,000=$5,470,000

Book value per share=$5,470,000/20,000=$273.50