Question
Financial Learning Systems has 1.8m million shares of common stock outstanding and 86,410 shares of preferred stock. (The preferred pays annual cash dividends of $4.59
Financial Learning Systems has 1.8m million shares of common stock outstanding and 86,410 shares of preferred stock. (The preferred pays annual cash dividends of $4.59 a share, and the common pays annual cash dividends of 27 cents a share.) Last year, the company generated net profit (after taxes) of $7,860,801. The company's balance sheet shows total assets of $85 million, total liabilities of $33million, and $5 million in preferred stock. The firm's common stock is currently trading in the market at $37.35 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 $5.95 and the P/E ratio stays where it is? What will happen if EPS drops to $2.62 and the P/E doesn't change? c. What will happen to the price of the stock if EPS rises to $5.95 and the P/E jumps to 12.9 times earnings? d. What will happen if both EPS and the P/E ratio drop to $2.62 and 5.2 times earnings, respectively? e. Comment on the effect that EPS and the P/E ratio have on the market price of the stock. (Round to the nearest cent)
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