The balance sheet of Redd Rug Company reported the following:
Redeemable preferred stock, 5%, $70 par value,
redemption value $40,000; outstanding 450 shares................ $ 31,500
Common stockholders’ equity:
6,000 shares issued and outstanding...................................... 80,000
Total stockholders’ equity..................................................... $111,500
Requirements
1. Compute the book value per share for the common stock, assuming all preferred dividends are fully paid up (none in arrears).
2. Compute the book value per share of the common stock, assuming that three years’ cumulative preferred dividends, including the current year, are in arrears.
3. Redd Rug’s common stock recently traded at a market price of $12.85 per share. Does this mean that Redd Rug’s stock is a good buy at $12.85?