An analyst gathers the following information about Meyer, Inc.:
• Meyer has 1,300 shares of 8% cumulative preferred stock outstanding, with a par value of $240, and liquidation value of $250.
• Meyer has 22,400 shares of common stock outstanding, with a par value of $52.
• Meyer had retained earnings at the beginning of the year of $5,050,000.
• Net income for the year was $74,000.
• 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?
To calculate the book value per share of Meyer's common stock, you need to consider the total equity (net assets) available to common stockholders and divide it by the number of common shares outstanding.
First, let's calculate the total equity available to common stockholders:
1. Calculate the total value of preferred stock:
Preferred Stock Value = Number of preferred shares * Liquidation value per share
Preferred Stock Value = 1,300 shares * $250 = $325,000
2. Calculate the total equity (net assets):
Total Equity = Retained Earnings at the beginning of the year + Net Income - Preferred Dividends
Total Equity = $5,050,000 + $74,000 - $0 (no preferred dividends paid)
Total Equity = $5,124,000
3. Subtract the preferred stock value from the total equity to get the equity available to common stockholders:
Equity Available to Common Stockholders = Total Equity - Preferred Stock Value
Equity Available to Common Stockholders = $5,124,000 - $325,000
Equity Available to Common Stockholders = $4,799,000
Next, let's calculate the book value per share:
4. Divide the equity available to common stockholders by the number of common shares outstanding:
Book Value per Share = Equity Available to Common Stockholders / Number of common shares
Book Value per Share = $4,799,000 / 22,400 shares
Finally, calculate the book value per share of Meyer's common stock:
Book Value per Share = $214,062.50 / 22,400 shares ≈ $95.54 (rounded to the nearest cent)
Therefore, the book value per share of Meyer's common stock is approximately $95.54.