Question

Wildcat Corporation recently disclosed the following financial information: Earnings/revenue $2,086,225 Assets $10,700,000 Liabilities $1,771,704 Shares outstanding 667,777 Market price $27.00 per share Calculate the price-to-book ratio, the price/earnings ratio, and the book value per share for each of the following separate scenarios: a. Based on current information b. Earnings fall to $1,390,817 c. Liabilities increase to $3,854,797 d. The company does a three-for-one stock split with no change in market capitalization e. The company repurchases 20 percent of the outstanding stock, incurring additional liability to finance the purchase. a. Based on current information, the book value per share is $ 13.37. (Round to the nearest cent.) Based on current information, the market-to-book (price/book) ratio is 2.02. (Round to two decimal places.) Based on current information, the pricelearnings ratio is 8.64. (Round to one decimal place.) b. If earnings fall to $1,390,817, the book value per share is $ 13.37. (Round to the nearest cent.) Note: assume this is the only change from the current information (part a.). If earnings fall to $1,390,817, the market-to-book (price/book) ratio is 2.02 . (Round to two decimal places.) If earnings fall to $1,390,817, the price/earnings ratio is 12.96 (Round to one decimal place.) c. If liabilities increase to $3,854,797, the book value per share is $ 10.25. (Round to the nearest cent.) Note: assume this is the only change from the current information (part a.). If liabilities increase to $3,854,797, the market-to-book (price/book) ratio is 2.63. (Round to two decimal places.) If liabilities increase to $3,854,797, the pricelearnings ratio is 8.64. (Round to one decimal place.) d. If the company does a three-for-one stock split with no change in market capitalization, the book value per share is $ (Round to the nearest cent.) Note: assume this is the only change from the current information (part a.).

Answer 1

Wildcat Company Particulars Book Value per Price To book share (BPS) Ratio P/E Ratio Book value of Equity: Total assets - liabilities =book value of equity/no. of shares MPS/BPS MPS/EPS EPS = Earnings / Shares Outstanding il to; a) Based on current Information Book value of equity = $10,700,000 - $1,771,704 = $8,928,296 EPS = Earnings / Shares Outstanding = $2086225/667777 = $3.12 = $8928296 /667,777shares = 27.00/ 13.37 = 27.00/3.12 = $13.37 = 2.02 = 8.65 b) Earnings fall to $1,390,817 Book value of equity = $10,700,000 - $1,771,704 = $8,928,296 EPS = Earnings / Shares Outstanding = $1390817/667777 = $2.08 = $8928296 /667,777shares = 27.00/ 13.37 = 27.00/2.08 = $13.37 = 2.02 = 12.98 c) Liabilities Increase to $3,854,797: Book value of equity = $10,700,000 - $3,854,797 = $6,845,203 EPS = Earnings / Shares Outstanding = $2086225/667777 = $3.12 = $6845203 /667,777shares = 27.00/ 10.25 = 27.00/3.12 = $10.25 = 2.63 = 8.65 d) Company split the shares into 3 with same market capitalization Number of shares = 667,777*3 = 20,03,331 Book value of equity = $10,700,000 - $1,771,704 = $8,928,296 EPS = Earnings / Shares Outstanding = $2086225/2003331 = $1.04 MPS = 27.00 /3 shares = $9.00 = $8928296 /2003331shares = 9.00/4.46 = 9.00/1.04 = $4.46 = 2.02 = 8.65