Hunter Manufacturing Inc.'s December 31, 2008 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2009, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/09, assuming that Hunter neither issued nor retired any common stock during 2009?

Question

Quizplus · Accepted Answer

Book value per share is calculated by dividing total common equity by the number of shares outstanding.

Total common equity as of 12/31/08 = $2,050,000

Number of shares outstanding = 100,000

Therefore, book value per share as of 12/31/08 = $2,050,000 / 100,000 = $20.50 per share

During 2009, Hunter had net income of $250,000 and paid out $100,000 as dividends. This means that retained earnings increased by $250,000 - $100,000 = $150,000.

Total common equity as of 12/31/09 = $2,050,000 (no change from 2008) + $150,000 (increase in retained earnings)

= $2,200,000

Number of shares outstanding = 100,000 (no change from 2008)

Therefore, book value per share as of 12/31/09 = $2,200,000 / 100,000 = $22.00 per share.