Question

Amigo Software Inc. has total assets of \(889,000, current liabilities of\)192,000, and long-term liabilities of \(154,000. There is \)87,000 in preferredstock outstanding. Thirty thousand shares of common stock have been issued.

a. Compute book value (net worth) per share.

b. If there is $56,300 in earnings available to common stockholders and the

firm’s stock has a P/E of 23 times earnings per share, what is the currentprice of the stock?

c. What is the ratio of market value per share to book value per share? (Round

to two places to the right of the decimal point.)

Short answer

a. The book value per share is$18.10.

b. Current price of the stock is $43.24.

c. Ratio of market value per share to book value per share is 2.39.

Step-by-step solution

Total liability of the company

$$\begin{gathered} Totalliability=Currentliability-Long-termliabilities \\ =\$192,000+\$154,000 \\ =\$346,000 \end{gathered}$$

Book value per share of the company

$$\begin{gathered} BookValuepershare=\frac{Totalassets-Totalliabilities}{Noofshares} \\ =\frac{\$889,000-\$346,000}{30,000} \\ =\$18.10 \end{gathered}$$

EPS of the company

$$\begin{gathered} EPS=\frac{Earningavailablefromshareholders}{No.ofouts\tan dingshare} \\ =\frac{\$56,000}{30,000} \\ =\$1.88 \end{gathered}$$

Current market price of the company 

$$\begin{gathered} MPS=P/ERatio\times EPS \\ =23\times \$1.88 \\ =\$43.24 \end{gathered}$$

Ratio of market value per share (MPS) to book value per share (BVPS) of the company

$$\begin{gathered} Ratio=\frac{MPS}{BVPS} \\ =\frac{\$43.24}{\$18.10} \\ =2.39 \end{gathered}$$