Class 503

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The average stock prices for each of the four years shown in Exhibit 1 were as follows:
1998111/4 = 27.75
1999163/4 = 40.75
2000281/2 = 140.5
200191/2 = 45.5
a. compute the price/earnings ratio for each year. That is, take the stock price shown above and divide by net income per common stock-dilution from exhibit 1. 2001 (3,417)/$ 0.27 = 12,655.5
2000 (3,379)/$0 .55 = 6,143.63
1999 (3,282)/$ 0.31 = 10,587.09
1998 (3,180)/$ 0.24 = 13,250.00
b. Why do you think P/E has changed from its 2000 to its 2001 level? ( Earnings per share in Chapt. 2)
The P/E has changed from 2000 at 6,143.63 to 2001 at 12,655.50 because the net income per common stock-dilution has dropped in price. In 2000 it was $0.55 per common stock to $0.27 in 2001. The price dropped $0.28 over a year period. Also there is a drastic change the average stock prices for 2000 to 2001. The stocks were 281/2 in 2000 to 91/2 in 2001, this causing a huge decrease in value. 7. The book values per share for the same four years discussed in the preceding question were: a.Compute the ratio of price to book value for each year.

P/B = Share Price / Book Value per Share

Share PriceBook Value per Share
1998 $1.18$ 0.24/$1.18=$0.20
1999 $ 1.55$ 0.31/$1.55=$0.20
2000 $2.29$0 .55/$2.29=$0.24
2001 $ 3.26$ 0.27/$3.26=$0.08

b.Is there any dramatic shift in the ratio worthy of note?
Yes, the book value per share was at its highest in 2000 at $0.24 and drastically dropped in 2001 at $0.08 book value per share. The lower the book value per share is, the better the value. This is demonstrated in the previous question.
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