An analyst gathers the following information about Meyer, Inc.: · Meyer has 1,000 shares of 8% 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 $5,000,000. · Net income for the year was $70,000. · This year, for the first time in its history, Meyer paid no dividends on preferred or common stock. What is the book value per share of Meyer’s common stock?
is it 0.2735
who can tell me how you do this problem? thanks
I did value of par common, preferred, retained earning at year start and new retained earnings divided by shares o/s.
i think you don’t include the number preferred in the shares calculation.
I didn’t include the number of shares in the preferred calculation… just the 20k of common. I did include the value of the preferred, however. One thing I’m not sure of is whether PAR or liquidation value per share is appropriate.
so far all answers are wrong
My take: BV= (Total equity - preferred equity)/# common shares outstanding NI was 70, and the equivalent dividend for the preferred stock would have been 8%*1000*100 = 8,000, so RE would be 62,000, so the ending value of common equity would be Beginning RE+ RE+Common stock=5,000,000+62,000+20*20,000=5,462,000 Shares outstanding: 20,000 273.1?
I’m not sure about the par or market value for preferred, but if the market value is used, than BV would be 272.6
Doesn’t the Q say they did not pay preferred dividend, so all NI should be RE I would imagine par value not market.
It doesn’t matter, preferred dividend is cummulative, it gets deducted even if not paid.
The dividend of preferred stock, even if not paid, should not increase the value of common stock (through RE).
map1, you have to tell me after the exam what score you get. you must get every sector over 70%
What’s the answer Portfolio? maybe we can find what is wrong in our judgement.
Portfolio Wrote: ------------------------------------------------------- > map1, you have to tell me after the exam what > score you get. you must get every sector over 70% I will, I promise, in the mean time, what’s the answer to this one? do we use the book or the market value of preferred?
the answer is 272.6, no explanation: but I can’t arrive at the number using your method. common par value 20,000*20=400,000 plus retained earning 5,000,000 plus net income 70,000 minus deferred dividend 8,000 I get the number of 5,462,000 If use market value: 1000*110=110,000 preferred total is 5462,000 + 110,000 = 5572,000 / 20,000 = 273.60 if use par value: 1000*100=100,000 preferred total is 5462,000+100,000= 5562,000 / 20,000 =278.10
That’s great, the conclusion is that we should use the market value of preferred stock, and since the market value is higher than the book value, it means anoter 10,000 = 1000*(110-100) gets deducted from the common equity: (5,462,000 -10,000)/20,000=272.6
where did preferred equity play a role in your calculation? for the preferred dividend, for sure it should be using par * 8% map1 Wrote: ------------------------------------------------------- > My take: > > BV= (Total equity - preferred equity)/# common > shares outstanding > > NI was 70, and the equivalent dividend for the > preferred stock would have been 8%*1000*100 = > 8,000, so RE would be 62,000, so the ending value > of common equity would be Beginning RE+ RE+Common > stock=5,000,000+62,000+20*20,000=5,462,000 > > Shares outstanding: 20,000 > > 273.1?