CHAPTER 3-10

# CHAPTER 3-10 - Net increase in cash \$ 190 Cash end of year...

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Net increase in cash \$ 190 Cash, end of year \$ 22,050 29. Earnings per share = Net income / Shares Earnings per share = \$36,475 / 25,000 = \$1.46 per share P/E ratio = Shares price / Earnings per share P/E ratio = \$43 / \$1.46 = 29.47 times Dividends per share = Dividends / Shares Dividends per share = \$20,000 / 25,000 = \$0.80 per share Book value per share = Total equity / Shares Book value per share = \$192,840 / 25,000 shares = \$7.71 per share Market-to-book ratio = Share price / Book value per share Market-to-book ratio = \$43 / \$7.71 = 5.57 times PEG ratio = P/E ratio / Growth rate PEG ratio = 29.47 / 9 = 3.27 times 30. First, we will find the market value of the company’s equity, which is: Market value of equity = Shares × Share price Market value of equity = 25,000(\$43) = \$1,075,000 The total book value of the company’s debt is: Total debt = Current liabilities + Long-term debt Total debt = \$43,235 + 85,000 = \$128,235 Now we can calculate Tobin’s Q, which is: Tobin’s Q = (Market value of equity + Book value of debt) / Book value of assets Tobin’s Q = (\$1,075,000 + 128,235) / \$321,075 Tobin’s Q = 3.75 Using the book value of debt implicitly assumes that the book value of debt is equal to the market
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