Q8

Financial Learning Systems has 1.8 million shares of common stock outstanding and 63 comma 939 shares of preferred stock. (The preferred pays annual cash dividends of $5.89 a share, and the common pays annual cash dividends of 32 cents a share.) Last year, the company generated net profit (after taxes) of $ 5 comma 765 comma 438. The company's balance sheet shows total assets of $73 million, total liabilities of $ 33 million, and $ 4 million in preferred stock. The firm's common stock is currently trading in the market at $42.76 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 $4.34 and the P/E ratio stays where it is? What will happen if EPS drops to $1.74 and the P/E doesn't change?

c. What will happen to the price of the stock if EPS rises to $4.34 and the P/E jumps to 20.3 times earnings?

d. What will happen if both EPS and the P/E ratio droplong dash to $1.74 and 8.4 times earnings, respectively?