The balance sheet of Modern Rug Company reported the following: EEB (Click the i

Question

The balance sheet of Modern Rug Company reported the following: EEB (Click the icon to vlew the data.) 1. Compute the book value per share for the common stock, assuming all preferred dlvidends are fully pald 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 arears. 3. Moden Rug's common stock recently traded at a market price of $12.75 per share. Does this mean that Mn Rug's stock is a good buy at $12.75 Requirements 1. and 2. Compute the book value per share for the common stock, (1) assuming all preferred dividends are fully paid up (none in arrears), and (2) assuming that three years' cumulative preferred dividends, indluding the current year, are n arrears. Begin by selecting the formula labels and then enter the amounts to calculate the book value per share of comrmon stock for requirerient 1 and requirement 2. (Abbreviations used: BV Book Value, CS Common Stock, and Req. Requirement. Round the book value per share to the nearest cent.) BV per share of CS Data Table Redeemable preferred stock, 10%, $60 par value redemption value $30,000.outstanding.300 shares Common stockholders' equity: S 18,000 70,000 hoose from any drop-down list and then click Check Answer. 4.000 shares issued and outstanding S 88,000 Total stockholders' equity. Clear AlI wer

Explanation / Answer

Requirment 1 & 2 :

3. Yes , at $ 12.75 per share, Modern Rug's stock is a good buy, as it is undervalued, as compared to the book value. Hence there is probability of upside from current market price.

Common Stockholders Equity - Preferred Dividends in Arrears / Outstanding Common Shares = Book Value per Share of Common Stock 1. $ 70,000 - 0 / 4,000 $ 17.50 2. $ 70,000 5,400 4,000 16.15

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