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The balance sheet for Larry Underwood Motors shows a book value of stockholders’ equity (book value per share × total shares out- standing) of $1,300,000. Furthermore, the firm’s income statement for the year just ended has a net income of $500,000, which is $0.25 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 20. a. What price would you expect Underwood Motors shares to sell for? b. What is the book value per share for Underwood’s shares?

The balance sheet for Larry Underwood Motors shows a book value of stockholders’ equity (book value per share × total shares out- standing) of $1,300,000. Furthermore, the firm’s income statement for the year just ended has a net income of $500,000, which is $0.25 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 20. a. What price would you expect Underwood Motors shares to sell for? b. What is the book value per share for Underwood’s shares?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter10: Stockholder's Equity
Section: Chapter Questions
Problem 79E: Ratio Analysis MJO Inc. has the following stockholders equity section of the balance sheet: On the...
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The balance sheet for Larry Underwood Motors shows a book value of stockholders’ equity (book value per share × total shares out- standing) of $1,300,000. Furthermore, the firm’s income statement for the year just ended has a net income of $500,000, which is $0.25 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 20.

a. What price would you expect Underwood Motors shares to sell for?

b. What is the book value per share for Underwood’s shares?

 

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