Market Value Ratios You are considering an investment in Rivers Ringtone Corp. D
ID: 2637209 • Letter: M
Question
Market Value Ratios You are considering an investment in Rivers Ringtone Corp. During the last year the firm's income statement listed addition to retained earnings = $2.5 million and common stock dividends = $1.2 million. Rivers year-end balance sheet shows common stockholders' equity = $10 million with 2 million shares of common stock outstanding. The common stock's market price per share = $45.00. What is Rivers Ringtone Corp' book value per share and earnings per share? Calculate the market-to-book ratio and PE ratio. Show all calculations for the questions and requests above.
Explanation / Answer
Book value per share = common stockholders equity / number of shares = 10 million / 2 million = $ 5 / share
Net income = addition to retained earnings + dividends = 2.5 + 1.2 = $ 3.7 million
Earnings per share = net income / number of shares = 3.7 / 2 = $ 1.85 / share
Market to book ratio = share price / book value per share = 45 / 5 = 9
PE ratio = share price / earnings per share = 45 / 1.85 = 24.32
Answer: Book value per share = $ 5
Earnings per share = $ 1.85
Market to book ratio = 9
PE ratio = 24.32
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