Concept Introduction:
If a company is liquidated at
Requirement 1:
Book value per common share for both Companies.
Answer to Problem 2AA
| Book Value per Common Share | |
| Apple | |
| $26.15 | $219.50 |
Explanation of Solution
Concept Introduction:
Earnings per share is the amount of net income available per share after distribution of preference dividends.
Requirement 2:
Computation of basic earnings per share of Apple and Google
Answer to Problem 2AA
| Basic Earnings per Share | |
| Apple | |
| $9.27 | $18.27 |
Explanation of Solution
Concept Introduction:
Dividend yield is financial ratio expressed in percentage which is obtained by comparing the cash dividends per share with market value per share of the company. It is a measure of determining whether a stock is income stock or growth stock.
Requirement 3:
Computation of Dividend Yield of Apple and Google
Answer to Problem 2AA
| Dividend Yield | |
| Apple | |
| 1.56% | 0% |
Explanation of Solution
Concept Introduction:
Price Earnings Ratio shows the expectation of investors regarding current earnings stream of a company. It is determined by comparing the market value per share with the earnings per share of a company.
Requirement 4:
Computation of Price-Earnings Ratio of Apple and Google
Answer to Problem 2AA
| Price-Earnings Ratio | |
| Apple | |
| 16.63 | 57.27 |
Explanation of Solution
Concept Introduction:
Price Earnings Ratio shows the expectation of investors regarding current earnings stream of a company. It is determined by comparing the market value per share with the earnings per share of a company.
Requirement 5
Considering the Price-Earnings Ratio of Apple and Google, for which company do investors have greater expectation about future performance?
Answer to Problem 2AA
The investors of Google Company have higher expectation about future performance compare to Apple, Inc.
Explanation of Solution
| Price-Earnings Ratio | |
| Apple | |
| 16.63 | 57.27 |
Price-earnings ratio of a company shows the market expectation. The higher the PE ratio, the expectation of investors would be greater and vice-versa. As the price-earnings ratio of Google is higher compare to Apple, it reveals that the expectation of Apple's investors is greater.
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Chapter 13 Solutions
Fundamental Accounting Principles
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