# Book Value of Equity Questions

An analyst gathers the following information about Meyer, Inc.:

• Meyer has 1,800 shares of 10% cumulative preferred stock outstanding, with a par value of \$100 and liquidation value of \$110.

• Meyer has 20,000 shares of common stock outstanding, with a par value of \$20.

• Meyer had retained earnings at the beginning of the year of \$5,400,000.

• Net income for the year was \$78,000.

• This year, for the first time in its history, Meyer paid no dividends on preferred or common stock.

Calculate the total book value of Meyer’s common stock.

I started with the par value of common stock (\$400M), added the prior year’s RE of \$5,400M, the change in returned earnings of \$78M, subtracted the deferred dividends of the cumulative preferred stock of \$18M, and got \$5,860M. I tried a bunch of different ways but can’t seem to figure out what the answer should be. Does anyone know how I would go about solving this?

You are almost there buddy.

Shareholders equity does not include preferred shares. calculation is: COMMON EQUITY- COMMON SHARE BUYBACKS+RE+NI-DIV (in MN) so 400+5.4+.078-0=405.478m

I did the calculation again without preferred shares & without deferred dividends of the cumulative preferred stock…

• \$20 per share x 20,000 shares = \$400,000
• Plus: R/E at beginning of year = \$5,400,000
• Plus: Change to R/E (just NI since no distributions) = \$78,000

This yielded a total book value of \$5,878,000 for common stock. Thank for the clarification of not including preferred shares in the calculation of shareholder’s equity!