Problem $4\mathrm{.}1$: Edelman Engines balance sheet indicates that the book value of stockholders' equity $($book value per share times total shares outstanding$)$ is $$2,500,000.$ The firm's earnings per share are $$2\mathrm{.}40,$ which produces a price$-$earnings ratio of $14\mathrm{.}0.$ If there are $250,000$ shares of common stock outstanding, what is the firm's market$-$tobook ratio $($i$.$e$.$ the ratio of price per share to book value per share$)?$ What does the market$-$to$-$book ratio tell us$?$

Hint: To find Market$-$to$-$book ratio first find both its price per share $($the "market" part$)$ using the $\frac{P}{E}$ ratio & earnings per share and secondly its book value $($BV$)$ per share $($the "book" part$).$

DATA GIVEN:

Book value equity

Earnings per share $($EPS$)$

$\frac{P}{E}$ ratio

Common shares outstanding

Market price per share

Book value per share

Market$/$book ratio

Use $\frac{P}{E}$ ratio and earnings per share, see formula $4-15$ Use book value and shares outstanding market price per share $/$ book value per share

Market$-$to$-$book ratio tells us: