Financial Learning Systems has 2.9 million shares of common stock outstanding and 61,410 shares of preferred stock. (The preferred pays annual cash dividends of $4.46 a share, and the common pays annual cash dividends of 19 cents a share.) Last year, the company generated net profit (after taxes) of $5,809,735. The company's balance sheet shows total assets of $72 million, total liabilities of $26 million, and $5 million in preferred stock. The firm's common stock is currently trading in the market at $48.62 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 $2.76 and the P/E ratio stays where it is? What will happen if EPS drops to $1.04

and the P/E doesn't change?

c. What will happen to the price of the stock if EPS rises to $2.76 and the P/E jumps to 36.1 times earnings?

d. What will happen if both EPS and the P/E ratio dropto $1.04 and 14.3 times earnings, respectively?

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