Excerpts from Goodrow Corporation's most recent balance sheet and income statement appear below: ...

Question:

Excerpts from Goodrow Corporation's most recent balance sheet and income statement appear below:

Year 2 Year 1
Total assets $1,220 $1,200
Total liabilities 510 $530
Stockholders' equity:
Preferred stock, $100 par value, 10% $100 $100
Common stock, $2 par value 400 400
Additional paid-in capital-common stock 130 130
Retained earnings 80 40
Total stockholders' equity $710 $670

Sales (all on account) $1,330

Cost of goods sold 810

Gross margin 520

Selling and administrative expense 391

Net operating income 129

Interest expense 29

Net income before taxes 100

Income taxes (30%) 30

Net income $70

Dividends on common stock during Year 2 totaled $20 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $5.34 per share.

The book value per share at the end of Year 2 is closest to:

- $6.10

- $3.05

- $3.55

- $0.30

Book Value Per Share:

Book value per share is a technique for calculating the per-share value of a company. It is used by investors to estimate whether the company's stock price is undervalued or overvalued by analyzing it with the market value per share.

Answer and Explanation:

The correct option is: $3.05

Explanation:

{eq}\begin{align*} {\rm{Book}}\;{\rm{value}}\;{\rm{per}}\,{\rm{share}} &= \dfrac{{{\rm{Total}}\;{\rm{common}}\,{\rm{stockholders'}}\;{\rm{equity - Preferred}}\;{\rm{stock}}}}{{{\rm{Number}}\;{\rm{of}}\;{\rm{common}}\;{\rm{shares}}}}\\ & = \dfrac{{710 - 100}}{{400 \div 2}}\\ &= \dfrac{{610}}{{200}}\\ &= \$ 3.05 \end{align*} {/eq}


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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