Reynolds Construction's value of operations is $750 million based on the corporate valuation model.Its balance sheet shows $50 million of short-term investments that are unrelated to operations,$100 million of accounts payable,$100 million of notes payable,$200 million of long-term debt,$40 million of common stock (par plus paid-in-capital),and $160 million of retained earnings.What is the best estimate for the firm's value of equity,in millions?

Question

Quizplus · Accepted Answer

$\begin{array}{lccc}
\text { Value of operations: } & \$750  \
\text { Short-term investments: } & \$50 \
\text { Notes payable: } & \$100 \
\text { Long-term debt: } & \$200 \
\end{array}$ 
Assuming that the book value of debt is close to its market value,the total market value of the company is:
 Total market value $ = $ Value of operations $ + $ Value of non-operating assets
 &emsp; &emsp;  &emsp; &emsp; &emsp; &emsp;  $=\$ 750+\$ 50=\$ 800 .$
Value of Equity$ = $ Total MV $ - $ Long- and Short-term debt $ =\$ 500 . $ The book value of equity figures are irrelevant for this problem.Also,the accounts payable are not relevant because they were netted out when the FCF was calculated.

Reynolds Construction's Value of Operations Is $750 Million Based on the Corporate