24BP The Holtzman Corporation has ass... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 24BP (page 52)

The Holtzman Corporation has assets of $400,000, current liabilities of $50,000, and long-term liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $22,000 in earnings available to common stockholders and
Holtzman鈥檚 stock has a P/E of 18 times earnings per share, what is the current
price of the stock?
c. What is the ratio of market value per share to book value per share?

Short Answer

Expert verified

Answer:

a. The book value per share is$12.5.

b. Current price of the stock is $19.8.

c. Ratio of market value per share to book value per share is 1.584.

Step by step solution

Total liability of the company

$T o t a l l i a b i l i t y = C u r r e n t l i a b i l i t y - L o n g - t e r m l i a b i l i t i e s = $ 50, 000 + $ 100, 000 = $ 150, 000$

Book value per share of the company

$B o o k V a l u e p e r s h a r e = \frac{T o t a l a s s e t s - T o t a l l i a b i l i t i e s}{N o o f s h a r e s} = \frac{$ 400, 000 - $ 150, 000}{$ 20, 000} = 12.5$

EPS of the company

$E P S = \frac{E a r n i n g a v a i l a b l e f r o m s h a r e h o l d e r s}{N o . o f o u t s \tan d i n g s h a r e} = \frac{$ 22000}{20, 000} = $ 1.1$

Current market price of the company

$M P S = P / E R a t i o 脳 E P S = 18 脳 $ 1.1 = $ 9.8$

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

$R a t i o = \frac{M P S}{B V P S} = \frac{$ 19.8}{$ 12.5} = 1.584$

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Units sold	Total variable costs	Fixed costs	Total costs	Total revenue	Operating income (Loss)
60,000	\(120,000	\)50,000	\(170,000	\)360,000	$190,000
80,000	160,000	50,000	210,000	480,000	270,000

STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1
Sales (20,000 tires at \(60 each)	\)1,200,000
Less: variable costs (20,000 tires at \(30)	600,000
Less: fixed cost	400,000
Earnings before interest and taxes (EBIT)	\)200,000
Interest expenses	50,000
Earning before taxes (EBT)	\(150,000
Income tax expenses (30%)	45,000
Earning after taxe (EAT)	\)105,000

Increase in accounts receivable	Decrease in prepaid expenses
Increase in notes payable	Increase in inventory
Depreciation expense	Dividend payment
Increase in investment	Increase in accrued expenses
Decrease in account payable

	Allstate trucking	Industry
Return on sales	3%	8%
Return on assets	15%	10%

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Short Answer

Step by step solution

Total liability of the company

Book value per share of the company

EPS of the company

Current market price of the company

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

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