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

Question

Quizplus · Accepted Answer

The value of equity is calculated as the value of operations minus non-operating liabilities and preferred stock. Here, equity value = $900M - $110M (notes payable) - $90M (long-term debt) - $20M (preferred stock) = $680M. The stock price per share is $680M / 25M shares = $28.40.

Based on the Corporate Valuation Model, the Value of a Company's