Afternoon Mock Q 86 present, because, understand, into

aurific

First of all, I hope they present questions better than this on the real exam:

I understand that if they used FIFO their inventory would have been $45M higher (yay! I can read), so that will flow through to NI as +$27M 45M(1 - . 40). I understand that.

I also understand that BVPS is S/E / #common outstanding, in this case its

SE + adjustment to NI calculated above / #common outstanding

I calc $325 + 27 / 10 = $35.2 BVPS then divide that into $59 to get P/Book. This is wrong because I didn't subtract dividends paid to preferred shareholders btw, because how the hell are you are supposed to understand that "preferred stock" up there actually means "dividends paid to preferred shareholders" and "common stock" means "dividends paid to common shareholders".

For all I know shareholders equity implies SE after preferred div have been paid, how the hell do I know?


Really good question in my opinion, but presented VERY poorly with this weak ass table

shootingstar

You have to subtract any senior claims to common, which includes Preferred Stock and preferred div in arrears from SE to arrive at common equity.

Pg 207 - Volume 5 CFA book.

burnsy562000

I havent gotten that question wrong twice as well. Do we just always assume to take out 'perferred stock' book value? That is my rationale to understand that answer.

sdada

@mbolzicco,

there is nothing wrong with table, dividends are not important here. preferred stock and common stock refer to the contributed capital from preferred stockholders and common stockholder, respectively. when calculating your P/B ratio you have to be consistent, i.e. divide common equity market value (i.e. you regular share price) by common equity book value.

hope that helps, cheers.