- CFA Exams
- CFA Level I Exam
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 4. Multiplier Models
CFA Practice Question
An analyst gathers the following information about a company:
- Authorized: 5,000,000 shares
- Issued: 4,000,000 shares
Additional paid-in-capital: $20,000,000
Retained earnings: $5,000,000
Treasury stock (500,000 shares): $10,000,000
Current price per share: $21
Common stock $1.50 par value
- Authorized: 5,000,000 shares
- Issued: 4,000,000 shares
Additional paid-in-capital: $20,000,000
Retained earnings: $5,000,000
Treasury stock (500,000 shares): $10,000,000
Current price per share: $21
The price-to-book (P/B) ratio of the company is closest to ______.
A. 2.35
B. 3.50
C. 4.10
Explanation: Number of issued and outstanding shares = 4 m - 0.5 m = 3.5 m; (Issued - Treasury Stock)
BV per share = 4m shares (1.50) + $20 m + $5 m - $10 m = $21 m / 3.5 m sh. = $6.00
Price-to-book value = $21 / $6.00 = 3.50
BV per share = 4m shares (1.50) + $20 m + $5 m - $10 m = $21 m / 3.5 m sh. = $6.00
Price-to-book value = $21 / $6.00 = 3.50
User Contributed Comments 3
| User | Comment |
|---|---|
| birdperson | subtracting treasury stock on the BV(equity) got me.. |
| jorellana9 | same here |
| miszkam | this makes more sense: (21*3.5)/(4*1.5+20+5-10)=3.5 |