Question

Chester's Balance Sheet has $57,976,422 in equity. Further, the company is expecting $3,000,000 in net income next year. Assuming no dividends are paid and no stock is issued, what would their Book Value be next year

Answer 1

Answer:

Chester's Book Value would be $60,976,422 next year.

Explanation:

a) Data and Calculations:

Equity = $57,976,422

Expected net income = $3,000,000

If no dividends are paid and no stock is issued, the expected net income will be equal to the Retained Earnings for the next period.

Therefore, the book value or equity value of Chester's balance sheet for the next year will be the addition of the net income of $3,000,000 to the equity balance of $57,976,422.

This will total $60,976,422 ($57,976,422 + $3,000,000).

b) Chester's book value is the net asset value and can be calculated as total assets minus liabilities.