Answer:
Explanation:
Solution :- (A)
(1) :- Book value per share = Total Assets / Total Number of Shares
Total Assets = ( $42 * 8,000,000 ) + $50,000,000 = $386,000,000
Total No. of Shares = ( $50,000,000 / 34 ) + 800,000 = 9,470,588.24
Book Value per share = $386,000,000 / 9,470,588.24
= $40.76
(2)
New Total Earnings = Current Net Income + Additional Income
= $4,700,000 + 800,000
= $5,500,000
(3)
New EPS = New Earnings / New total number of shares
= $5,500,000 / 9,470,588.24
= $0.581
(4)
New Price of Stock =
Old EPS = 4,700,000 / 8,000,000 = 0.5875
New Price = P/E Ratio * New EPS
= ( 34 / 0.5875 ) * 0.5807
= $33.61
(5) New Market to Book Ratio
= Market price / Book Value
= $33.61 / $40.76
= 0.825 times
(b)
Net Income = EPS old * Total New number of shares
= $0.5875 * 9,470,588
= $5,563,970.45
