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
Requirements
1. Compute the book value per share for the common shares, assuming all preferred dividends are fully 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 Rug's common shares recently traded at a market price of $7.75 per share. Does this mean that Oriental Rug's shares are a good buy at $7.75?