Financial Learning Systems has 1.7 million shares of common stock outstanding and 97,218 shares of preferred stock. (The preferred pays annual cash dividends of $5.02 a share, and the common pays annual cash dividends of 26 cents a share.) Last year, the company generated net profit (after taxes) of $7,076,423. The company's balance sheet shows total assets of $80 million, total liabilities of $36
Financial Learning Systems has 1.7 million shares of common stock outstanding and 97,218 shares of preferred stock. (The preferred pays annual cash dividends of $5.02 a share, and the common pays annual cash dividends of 26 cents a share.) Last year, the company generated net profit (after taxes) of $7,076,423. The company's balance sheet shows total assets of $80 million, total liabilities of $36
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Financial Learning Systems has
preferred stock . (The preferred pays annual cash dividends of
balance sheet shows total assets of
1.7
million shares of common stock outstanding and
97,218
shares of $5.02
a share, and the common pays annual cash dividends of
26
cents a share.) Last year, the company generated net profit (after taxes) of
$7,076,423.
The company's $80
million, total liabilities of
$36
million, and
$5
million in preferred stock. The firm's common stock is currently trading in the market at
$40.57
a share.a. Given the preceding information, find the EPS, P/E ratio, and book value per share.
b. What will happen to the price of the stock if EPS rises to
$5.85
and the P/E ratio stays where it is? What will happen if EPS drops to
$2.32
and the P/E doesn't change?c. What will happen to the price of the stock if EPS rises to
$5.85
and the P/E jumps to
14.8
times earnings?d. What will happen if both EPS and the P/E ratio
drop—to
$2.32
and
5.7
times earnings, respectively?e. Comment on the effect that EPS and the P/E ratio have on the market price of the stock.
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