Financial Learning Systems has 2.7 million shares of common stock outstanding and 149,622 shares of preferred stock. (The preferred pays annual cash dividends of $4.41 a share, and the common pays annual cash dividends of 19 cents a share.) Last year, the company generated net profit (after taxes) of $6,251,560. The company's balance sheet shows total assets of$70 million, total liabilities of $31 million, and $5 million in preferred stock. The firm's common stock is currently trading in the market at $38.05 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 $3.12 and the P/E ratio stays where it is? What will happen if EPS drops to $1.25 and the P/E doesn't change?

c. What will happen to the price of the stock if EPS rises to $3.12 and the P/E jumps to 25.8 times earnings?

d. What will happen if both EPS and the P/E ratio dropto $1.25 and 10.4 times earnings, respectively?

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