Lemma Corporation has total contributed capital of $600,000 and retained earnings of $305,000. It has 1,000 shares of $100 par value preferred stock with no dividends in arrears and 5,000 shares of $100 par value common stock. The preferred stock is callable at 105. The book value of each share of common stock is

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The total contributed capital is $600,000, which is the sum of the preferred and common stock values. Since there are 1,000 shares of preferred stock with a par value of $100, the total value of the preferred stock is $100,000.

The preferred stock is callable at 105, meaning that the company can buy back each share for 105% of its par value, or $105. However, we are not told whether or not the company plans to exercise this option. Therefore, we will assume that the preferred stock is not being called.

To find the book value per share of common stock, we need to subtract the value of the preferred stock (including any dividends in arrears) and the retained earnings from the total contributed capital, and then divide by the number of common shares outstanding:

Book value per share of common stock = ($600,000 - $100,000 - $305,000) / 5,000
Book value per share of common stock = $195,000 / 5,000
Book value per share of common stock = $39

Therefore, the book value per share of common stock is $39. However, the par value of each share of common stock is $100, which means that the company's assets per share exceed its par value. This indicates that the stock may be undervalued, and investors may be willing to pay more than its book value.

To account for this possibility, we can divide the total contributed capital by the number of outstanding shares of common and preferred stock to find the average value per share:

Average value per share = ($600,000 + $100,000) / 6,000
Average value per share = $700,000 / 6,000
Average value per share = $116.67

Since the average value per share ($116.67) is higher than the book value per share ($39), investors may be willing to pay more than the book value for the company's shares. However, we are not given enough information to determine the exact value of the stock on the market, so we cannot definitively say whether the stock is undervalued or overvalued.

Lemma Corporation Has Total Contributed Capital of $600,000 and Retained