Financial Learning Systems has 2.7 million shares of common stockoutstanding and 128,743 shares of preferred stock. (The preferred paysannual cash dividends of $4.28 a share, and the common pays annualcash dividends of 25 cents a share.) Last year, the company generatednet profit (after taxes) of $7,557,145. The company's balance sheetshows total assets of $84 million, total liabilities of $34 million, and $6million in preferred stock. The firm's common stock is currently tradingin the market at $46.98 a share.a. Given the preceding information, find the EPS, P/E ratio, and bookvalue per share.b. What will happen to the price of the stock if EPS rises to $3.95 andthe P/E ratio stays where it is? What will happen if EPS drops to $1.44and the P/E doesn't change?c. What will happen to the price of the stock if EPS rises to $3.95 andthe P/E jumps to 25.7 times earnings?d. What will happen if both EPS and the P/E ratio drop-to $1.44 and10.5 times earnings, respectively?e. Comment on the effect that EPS and the P/E ratio have on themarket price of the stock.

Here, Number of Preferred Stock 128,743Annual Cash Preference Dividend per share $…

Answered: Financial Learning Systems has 2.7…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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