The value of Broadway-Brooks Inc.'s operations is $900 million,based on the corporate valuation model.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?

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Value of operations: } & \$ 900 \
\text { Short-term investments: } & \$ 30 \
\text { Notes payable: } & \$ 110 \
\text { Long-term debt: } & \$ 90 \
\text { Preferred stock } & \$ 20 \
\text { Shares outstanding: } & 25
\end{array}$ 
Assuming that the book value of debt is close to its market value,the total market value of the company is:
 $\begin{array}{ll}
\text { Total market value } & =\text { Value of operations }+\text { Value of non-operating assets } \
& =\$ 900+\$ 30=\$ 930 . \
\text { Value of Equity } & =\text { Total MV - Long- and Short-term debt and preferred }=\$ 710 \
\text { Stock price } & =\text { Value of Equity/Shares outstanding }=\$ 28.40
\end{array}$ The book value of equity figures are irrelevant for this problem.Also,the working capital account numbers are not relevant because they were netted out when the FCF was calculated.

The Value of Broadway-Brooks Inc