Homework Answers
a) Based on Current Information:-
Book Value = Assets - Liabilities = $10,900,000 - $2,212,837 = $8,687,163
Book Value per Share = Book Value / Outstanding Share = $8,687,163 / 571,268 = $15.21
Price to Book Ratio = Share Market Price / Book Value Per Share = $33 / $15.21 = 2.17
Earning Per Share = Earning / Outstanding Share = $2,331,838 / 571,268 = $4.08
Price / Earning(P/E) Ratio = Market Price of Share / Earning Per Share = $33 / $4.08 = 8.09
b) Earnings fall to $1,554,559
[**Book value per share will be same as there are no change in Asset, Liabilities and Outstanding Share.]
Book Value per Share = Book Value / Outstanding Share = $8,687,163 / 571,268 = $15.21
[**Price to Book will be same also]
Price to Book Ratio = Share Market Price / Book Value Per Share = $33 / $15.21 = 2.17
Earning Per Share(EPS) = Earning / Outstanding Share = $1,554,559 / 571,268 = $2.72
P/E Ratio = Market Price per Share / Earning Per Share = $33 / $2.72 = 12.13
c) Liabilities increases to $3,607,506
[**Here Book Value Per Share and Price to Book Ratio will be changed but P/E Ratio will be same as no change in EPS and Share market value. ]
Book Value = Assets - Liabilities = $10,900,000 - $3,607,506 = $7,292,494
Book Value per Share = Book Value / Outstanding Share = $7,292,494 / 571,268 = $12.77
Price to Book Ratio = Share Market Price / Book Value Per Share = $33 / $12.77 = 2.58
Earning Per Share = Earning / Outstanding Share = $2,331,838 / 571,268 = $4.08
Price / Earning(P/E) Ratio = Market Price of Share / Earning Per Share = $33 / $4.08 = 8.09
e) Company repurchase 20% share using credit
20% Share = 0.2 * 571,268 = 114,254
Now Outstanding Share = 571,268 - 114,254 = 457,014
They, buy back those share using credit.
So, Liability will increase = $33 * 114,254 = $3,770,382
Now, increased liability = $2,212,837 + $3,770,382 = $5,983,219
So, Book Value = Asset - Liabilities = $10,900,000 - $5,983,219 = $4,916,781
Book value Per Share = Book Value / Outstanding Share = $4,916,781 / 457,014 = $10.76
Price to Book Ratio = Share Price in Market / Book Value Per Share = $33 / $10.76 = 3.067
Earning Per Share (EPS) = Earning / Outstanding Share = $2,331,838 / 457,014 = $5.1
Price / Earning(P/E) Ratio = Market Price of Share / Earning Per Share = $33 / $5.1 = 6.47
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