Based on the corporate valuation model, the value of Chen Lin Inc.'s operations is $900 million. Its balance sheet shows $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 its stock price per share?

Question

Quizplus · Accepted Answer

The value of the company's equity can be found by subtracting the value of its liabilities and preferred stock from the value of its operations:

Equity value = Operations value - Debt - Preferred stock 
Equity value = $900 million - $110 million - $90 million - $20 million 
Equity value = $680 million

Dividing the equity value by the number of shares outstanding gives us the estimated stock price per share:

Stock price per share = Equity value / Number of shares 
Stock price per share = $680 million / 25 million 
Stock price per share = $27.20

Therefore, the best estimate of Chen Lin Inc.'s stock price per share is $27.20, which is answer choice C.

Based on the Corporate Valuation Model, the Value of Chen