CASE STUDY QUESTION

Gretchen's Gimmicks and Gadgets Stores, Inc., is a growing

chain of specialty shops scattered around the country. The

company specializes in such goods as left$-$handed letter

openers and water$-$cooled ear muffs.

The corporation's balance sheet last December $31$ can be

summarized as follows:

Stockholders' equity:

Common stock: $1,000,000$ shares

of $$2\mathrm{.}00$ par value shares issued

and outstanding

$$2,000,000$

Retained earnings

$4,000,{000}_{?}$

Total stockholders' equity

$6,000,{000}_{?}$

Total liabilities and stockholders'

equity

Net income last year was $$1\mathrm{.}5$ million. The common stock

is currently selling for $$14\mathrm{.}00$ per share.

Your assignment: Compute the following: book value of the Your assignment: Compute the following: book value of the

corporation and book value per share, value of the corporation

if earnings are capitalized at

$2$

$0$

$$percent$,$ and the capitalized

value per share. Also, compute the market value of the entire

corporation. Here's a format you can use:

Book value of the corporation

Book value per share

$=$

Value of the corporation by capitalizing earnings at

$2$

$0$

$$percent

Capitalized earnings value per share

Market value of the whole corporation