Question

The Holtzman Corporation has assets of $418,000, current liabilities of $126,000, and long-term liabilities of $131,000. There is $38,700 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a. Compute book value (net worth) per share. (Round your answer to 2 decimal places.)

Book value per share _________?

b. If there is $32,300 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 21 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Current Price ________?

c. What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Market value to book value _______ times?

Answer 1

Answer and Explanation:

The computation is shown below:

a. The book value or net worth per share is

= (Assets - current liabilities - long term liabilities - outstanding preferred stock) ÷ (common stock shares)

= ($418,000 - $126,000 - $131,0000 - $38,700) ÷ (20,000 shares)

= $6.12 per share

b. Now the current price is

= Earnings available ÷ common stock shares × P/E

= $32,300 ÷ 20,000 shares × 21

= $33.92

c. The market value to book value is

= Market value ÷ book value

= $33.92 ÷ 6.12

= 5.54