Based on the corporate valuation model,Bizzaro Co.'s value of operations is $300 million.The balance sheet shows $20 million of short-term investments that are unrelated to operations,$50 million of accounts payable,$90 million of notes payable,$30 million of long-term debt,$40 million of preferred stock,and $100 million of common equity.Bizzaro has 10 million shares of stock outstanding.What is the best estimate of the stock's price per share?

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Value of operations: } & \$ 300 \
\text { Short-term investments: } & \$ 20 \
\text { Notes payable: } & \$ 90 \
\text { Long-term debt: } & \$ 30 \
\text { Preferred stock } & \$ 40 \
\text { Shares outstanding: } & 10
\end{array}$ 
Assuming that the book value of debt is close to its market value,the total market value of the company is:
 $\begin{array}{ll}
\text { Total market value } & =\text { Value of operations }+\text { Value of non-operating assets } \
& =\$ 300+\$ 20=\$ 320 . \
\text { Value of Equity } & =\text { Total MV - Long- and Short-term debt and preferred }=\$ 160 \
\text { Stock price } & =\text { Value of Equity/Shares outstanding }=\$ 16.00
\end{array}$ 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.

Based on the Corporate Valuation Model,Bizzaro Co