Chapter 13, Problem 2AA

To determine

Concept Introduction:

If a company is liquidated at balance sheet amounts, the value per share of the company determined according to the financial information prescribed in the books of accounts is termed as book value per share. It is computed by dividing the stockholders' equity applicable to common shares by the number of common shares outstanding.

Requirement 1:

Book value per common share for both Companies.

Answer to Problem 2AA

Book Value per Common Share
Apple	Google
$26.15	$219.50

Explanation of Solution

  $\begin{array}{l}Computationofbookvaluepershare\hfill \\ BookValueperShare=\frac{Stockholder’sequitytocommonshares}{Numberofcommonsharesoutstanding}\hfill \\ \hfill \\ Apple=\frac{\$134,047}{5,126.201}\hfill \\ =\$26.15\hfill \\ \hfill \\ Google=\frac{\$152,502}{694.783}\hfill \\ =\$219.50\hfill \end{array}$

To determine

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	Google
$9.27	$18.27

Explanation of Solution

  $\begin{array}{l}Computationofbasicearningspershare\hfill \\ BasicEarningsperShare=\frac{NetIncome–PreferredDividends}{Weighted-averagecommonsharesoutstanding}\hfill \\ \hfill \\ Apple=\frac{\$48,351-\$0}{5,217.242}\hfill \\ =\$9.27\hfill \\ \hfill \\ Google=\frac{\$12,662-\$0}{693.049}\hfill \\ =\$18.27\hfill \end{array}$

To determine

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	Google
1.56%	0%

Explanation of Solution

  $\begin{array}{l}ComputationofDividendYield\hfill \\ DividendYield=\frac{Annualcashdividendspershare}{Marketvaluepershare}\hfill \\ \hfill \\ Apple=\frac{\$2.40}{\$154.12}\hfill \\ =1.56\%\hfill \\ \hfill \\ Google=\frac{\$0.00}{\$1,046.40}\hfill \\ =0\%\hfill \end{array}$

To determine

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	Google
16.63	57.27

Explanation of Solution

  $\begin{array}{l}ComputationofPrice-EarningsRatio\hfill \\ Price-EarningsRatio=\frac{Marketvaluepershare}{Earningspershare}\hfill \\ \hfill \\ Apple=\frac{\$154.12}{\$9.27}\hfill \\ =16.63\hfill \\ \hfill \\ Google=\frac{\$1,046.40}{\$18.27}\hfill \\ =57.27\hfill \end{array}$

To determine

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	Google
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.