Financial Learning Systems has 1.8 million shares of common stock outstanding and 102,939 shares of preferred stock. (The preferred pays annual cash dividends of $5.95 a share, and the common pays annual cash dividends of 25 cents a share.) Last year, the company generated net profit (after taxes) of 7,113,084. The company's balance sheet shows total assets of $88 million, total liabilities of $39 million, and $5 million in preferred stock. The firm's common stock is currently trading in the market at $45.05 a share.

a. Given the preceding information, find the EPS, P/E ratio, and book value per share.

b. What will happen to the price of the stock if EPS rises to $5.36 and the P/E ratio stays where it is? What will happen if EPS drops to $ 2.07 and the P/E doesn't change?

c. What will happen to the price of the stock if EPS rises to $5.36 and the P/E jumps to 17.2 times earnings?

d. What will happen if both EPS and the P/E ratio drop to $2.07 and 6.9 times earnings, respectively?

e. Comment on the effect that EPS and the P/E ratio have on the market price of the stock.