Capital Experts, Ltd. (CEL), specializes in taking underperforming companies to a higher level of performance. CEL's capital structure at December 31, 2013, included 14,000 shares of $2.25 preferred stock and 115,000 shares of common stock During 2014, CEL issued common stock and ended the year with 125,000 shares of common stock outstanding. Average common shares outstanding during 2014 were 119,000. Income from continuing operations during 2014 was $235,000. The company discontinued a segment of the business at a loss of $69,000, and an extraordinary item generated a gain of $46,000. All amounts are after income tax. Assume the number of preferred shares outstanding did not change in 2014. Requirements 1. Compute CEL's earnings per share. Start with income from continuing operations 2. Analysts believe CEL can earn its current level of income for the indefinite future. Estimate the market price of a share of CEL common stock at investment capitalization rates of 5%, 7%, and 9%. Which estimate presumes an investment in CEL is the most risky? How can you tell? Requirement 1. Compute CEL's earnings per share. Start with income from continuing operations. (Round the EPS to the nearest cent and use a minus sign or parentheses for a negative EPS.) Earni ings per share: (119,000 average shares of common stock outstanding): definite ture. Estimate the market price of a share of CEL common stock at investment capita zation rates o 5% 7% and 9%, Which estimate presumes an Requirement 2 Analysts believe CEL can earn its current e el ofincome or te investment in CEL is the most risky? How can you tel? Begin by selecting the formula needed to estimate the market price of a share of the company's common stock using investment capitalization rates. Estimated value per share Use the formula you determined above to calculate the estimated value of a share of the company's common stock at the various investment capitalization rates. (Round your answers to the nearest cent.) Investment Capitalization Rates 5% 7% 9% Choose from any list or enter any number in the input fields and then continue to the next
