Linzey Corporation has provided the following data: The company's net income in Year 2 was $33,000. The company's book value per share at the end of Year 2 is closest to:
A)$22.45 per share
B)$12.45 per share
C)$0.55 per share
D)$15.45 per share

Question

Linzey Corporation has provided the following data:  The company's net income in Year 2 was $33,000. The company's book value per share at the end of Year 2 is closest to:
A)$22.45 per share 
B)$12.45 per share 
C)$0.55 per share 
D)$15.45 per share

Quizplus · Accepted Answer

The book value per share can be calculated using the formula:

Book value per share = (Total equity - Preferred stock) / Number of common shares outstanding.

We are not given the total equity or the number of common shares outstanding, but we can use the information given to calculate total equity as follows:

Net income = $33,000
ROE = 15%
Total equity at beginning of year = 100,000 / 0.15 = $666,667
Total equity at end of year = Total equity at beginning of year + Net income - Dividends
Dividends = (100,000 / 0.15) * 0.10 = $6,667
Total equity at end of year = $666,667 + $33,000 - $6,667 = $693,000

Now we can use the formula to calculate book value per share:

Book value per share = ($693,000 - 0) / 45,000 = $15.40 per share

The closest answer choice is D.

Linzey Corporation Has Provided the Following Data: the Company's