Chapter 12, Problem 4PA

Summary Introduction

(a)

To determine:

Price-to-book ratio, price/earnings ratio and book value per share.

Introduction:

Price-to-book-ratio is used in comparison of present market value of a company’s equity share with it’s per share value based on equity shares available to common stockholders.

Price earnings ratio is the connection between the present market price of company’s stock and its profit per share.

Book value per share is the accounting value of each share of stock of a company. It is calculated by dividing the total book value of shares by total number of shares which are currently held by general public, shareholders of the company and its officials.

Summary Introduction

(b)

To determine:

Price-to-book ratio, price/earnings ratio and book value per share when earnings falls to $1,000,000.

Summary Introduction

(c)

To determine:

Price-to-book ratio, price/earnings ratio and book value per share when liabilities increase to $2,500,000

Summary Introduction

(d)

To determine:

Price-to-book ratio, price/earnings ratio and book value per share after a three-for-one share split.

Introduction:

Stock Split is the breakdown of shares of a company which increases the number of shares available to trade in market without affecting the market value or market capitalization of company.

Summary Introduction

(e)

To determine:

Price-to-book ratio, price/earnings ratio and book value per share after the repurchase of 20 percent shares incurring additional liability.

Introduction:

Stock repurchase is purchase of a company’s own shares from the open market to decrease the quantity of shares presently owned by all the stockholders of the company.