Series 7 practice questionmediumEquity Securities — Common Stock — Book Value
A company has total assets of $50 million, total liabilities of $30 million, and preferred stock with a par value of $5 million. If there are 3 million common shares outstanding, what is the book value per common share?
- A$6.67✓ Correct answer
- B$5.00
- C$10.00
- D$16.67
Explanation
Why A — $6.67
Book value per common share is calculated as (Total Assets - Total Liabilities - Preferred Stock) / Common Shares Outstanding. So ($50M - $30M - $5M) / 3M shares = $15M / 3M = $5.00. Book value represents the theoretical amount each common share would receive if the company were liquidated at balance sheet values, after paying all liabilities and preferred claims.
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