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The balance sheet of Oriental Rug Company reported the following: Cumulative preferred shares, $0.06, outstanding 6,000 shares $10,000 Common shareholders equity: 8,000 shares issued and

The balance sheet of Oriental Rug Company reported the following:

Cumulative preferred shares, $0.06, outstanding 6,000 shares $10,000

Common shareholders equity: 8,000 shares issued and outstanding 87,200

Total shareholders equity $97,200

  1. Compute the book value per share for the common shares, assuming all preferred dividends are full paid up (none in arrears).
  2. Compute the book value per share of the common shares, assuming that three years preferred dividends, including the current year, are in arrears.
  3. Oriental Rugs common shares recently traded at a market price of $7.75 per share. Does this mean that Oriental Rugs shares are a good buy at $7.75?

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