{"id":185280,"date":"2025-01-22T10:06:05","date_gmt":"2025-01-22T10:06:05","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=185280"},"modified":"2025-01-22T10:06:08","modified_gmt":"2025-01-22T10:06:08","slug":"the-balance-sheet-for-larry-underwood-motors-shows-a-book-value-of-stockholders-equity-book-value-per-share-total-shares-outstanding-of-1349000","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/22\/the-balance-sheet-for-larry-underwood-motors-shows-a-book-value-of-stockholders-equity-book-value-per-share-total-shares-outstanding-of-1349000\/","title":{"rendered":"The balance sheet for Larry Underwood Motors shows a book value of stockholders&#8217; equity (book value per share total shares outstanding) of $1,349,000"},"content":{"rendered":"\n<p>The balance sheet for Larry Underwood Motors shows a book value of stockholders&#8217; equity (book value per share total shares outstanding) of $1,349,000. Furthermore, the firm&#8217;s income statement for th ended has a net income of $556, 000, which is $0.285 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 1871<\/p>\n\n\n\n<p>What price would you expect Underwood Motors shares to sell for? b. What is the book value per share for Underwood&#8217;s shares? Help me solve this a. What price would you expect Underwood Motors shares to sell for? The market price per share is $(Round to the nearest cent)<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">To solve the problem:<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">Step 1: Understand the given data<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Book value of stockholders&#8217; equity<\/strong>: $1,349,000<\/li>\n\n\n\n<li><strong>Net income<\/strong>: $556,000<\/li>\n\n\n\n<li><strong>Net income per share<\/strong>: $0.285<\/li>\n\n\n\n<li><strong>Price-Earnings (P\/E) ratio<\/strong>: 18.71<\/li>\n<\/ul>\n\n\n\n<p>We need to calculate:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>The expected market price per share<\/strong> (using the P\/E ratio and earnings per share).<\/li>\n\n\n\n<li><strong>The book value per share<\/strong> (using total equity and the number of shares).<\/li>\n<\/ol>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h4 class=\"wp-block-heading\">Part (a): Expected Market Price Per Share<\/h4>\n\n\n\n<p>The formula for market price per share is:<br>[<br>\\text{Market Price Per Share} = \\text{Earnings Per Share (EPS)} \\times \\text{P\/E Ratio}<br>]<\/p>\n\n\n\n<p>Given:<br>[<br>\\text{EPS} = 0.285, \\quad \\text{P\/E Ratio} = 18.71<br>]<br>[<br>\\text{Market Price Per Share} = 0.285 \\times 18.71 = 5.33235<br>]<\/p>\n\n\n\n<p>Rounded to the nearest cent:<br>[<br>\\text{Market Price Per Share} = 5.33<br>]<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h4 class=\"wp-block-heading\">Part (b): Book Value Per Share<\/h4>\n\n\n\n<p>The formula for book value per share is:<br>[<br>\\text{Book Value Per Share} = \\frac{\\text{Book Value of Equity}}{\\text{Number of Shares Outstanding}}<br>]<\/p>\n\n\n\n<p>To find the number of shares outstanding:<br>[<br>\\text{Number of Shares Outstanding} = \\frac{\\text{Net Income}}{\\text{EPS}} = \\frac{556,000}{0.285} = 1,950,877.19<br>]<\/p>\n\n\n\n<p>Now calculate the book value per share:<br>[<br>\\text{Book Value Per Share} = \\frac{1,349,000}{1,950,877.19} = 0.6914<br>]<\/p>\n\n\n\n<p>Rounded to the nearest cent:<br>[<br>\\text{Book Value Per Share} = 0.69<br>]<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Final Answer:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Expected Market Price Per Share<\/strong>: $5.33<\/li>\n\n\n\n<li><strong>Book Value Per Share<\/strong>: $0.69<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>The <strong>market price per share<\/strong> reflects the value investors assign based on the company\u2019s earnings potential, captured through the P\/E ratio. Multiplying EPS by the P\/E ratio gives an estimate of the market price, which is $5.33 per share.<\/p>\n\n\n\n<p>The <strong>book value per share<\/strong> shows the equity value per share based on accounting records. By dividing total equity by the number of shares, we find this value is $0.69 per share. The difference between market price and book value highlights how market expectations can drive valuation above the book value.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The balance sheet for Larry Underwood Motors shows a book value of stockholders&#8217; equity (book value per share total shares outstanding) of $1,349,000. Furthermore, the firm&#8217;s income statement for th ended has a net income of $556, 000, which is $0.285 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-185280","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=185280"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185280\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=185280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=185280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=185280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}