Class 503 Essay

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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