Based on the corporate valuation model, the value of a company’s operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock’s price per share?
a. $23.00
b. $25.56
c. $28.40
d. $31.24
e. $34.36
1
Expert's answer
2012-08-17T08:18:10-0400
The right answer is C. $28.40
We used the following equation: Market Capitalization = (Shares Outstanding * Current Share Price) + Current Long-term Debt. We can derive Current Share Price from here and it will be: (900-90-110)\25 = $28
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