Using the information below for WAM Inc., the market value per share is:
Earnings after interest and taxes = $200,000
Earnings per share = $2.00
Stockholders' equity = $2,000,000
Market/Book ratio = 0.20
A)$20.00.
B)$8.00.
C)$4.00.
D)$2.00.
E)$1.00.

Question

Quizplus · Accepted Answer

The market value per share can be calculated using the formula:

Market value per share = Earnings per share x Market/Book ratio

Substituting the given values, we get:

Market value per share = $2.00 x 0.20 = $0.40

However, this is the value of the book per share. To get the market value per share, we need to multiply this by the stockholders' equity per share:

Market value per share = $0.40 x ($2,000,000 / 1,000,000) = $0.40 x 2 = $0.80

Therefore, the market value per share is $4.00 (since the earnings per share is $2.00). So the answer is option C.

Using the Information Below for WAM Inc