Question
Fact Pattern: Bull & Bear Investment Banking is working with the management of Clark, Inc., in order to take the company public in an initial
Fact Pattern: Bull & Bear Investment Banking is working with the management of Clark, Inc., in order to take the company public in an initial public offering. Selected financial information for Clark is as follows.
Long-term debt (8% interest rate) | $10,000,000 |
Common equity: | |
Par value ($1 per share) | 3,000,000 |
Additional paid-in-capital | 24,000,000 |
Retained earnings | 6,000,000 |
Total assets | 55,000,000 |
Net income | 3,750,000 |
Dividend (annual) | 1,500,000 |
If public companies in Clarks industry are trading at a market to book ratio of 1.5, what is the estimated value per share of Clark?
**QUESTION BELOW**
Why are the amounts for net income and dividends being ignored in the calculation for retained earnings? How are we supposed to determine when to take the stated retained earnings balance as final rather than incorporating net income less dividends?
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