Question
Financial Learning Systems has 2.87 million shares of common stock outstanding and 157,025 shares of preferred stock. (The preferred pays annual cash dividends of $5.32
Financial Learning Systems has 2.87 million shares of common stock outstanding and 157,025 shares of preferred stock. (The preferred pays annual cash dividends of $5.32 a share, and the common pays annual cash dividends of 23 cents a share.) Last year, the company generated net profit (after taxes) of $7,595,099.The company's balance sheet shows total assets of $88 million, total liabilities of $40 million, and $5 million in preferred stock. The firm's common stock is currently trading in the market$47.78 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 $3.59 and the P/E ratio stays where it is? What will happen if EPS drops to $1.35
and the P/E doesn'tchange?
c.What will happen to the price of the stock if EPS rise to $3.59 and the P/E jumps to 29.3 times earnings?
d.What will happen if both EPS and the P/E ratio droplong dashto $1.35 and 11.5 times earnings, respectively?
e.Comment on the effect that EPS and the P/E ratio have on the market price of the stock.
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