Assiniboine Mills, incorporated ten years ago, shows on its year-end balance sheet net total assets of $30 million, current liabilities of $5 million, long term liabilities of $13 million and paid-in capital from common shares of $12 million at $15.00 each, now selling for $19.50. Of the assets, net realizable value of current assets and liabilities is 90% of book values, $9 million and $5 million, respectively. Land with a book value of $5 million, has appreciated steadily, averaging a 6% increase year-over-year. Building and equipment can be sold at net book value. Assiniboine issued 15-year bonds five years ago at par with an annual coupon rate of 6% and a face value of $12 million. Current interest rates are at 8%.What is the liquidation value per common share?

Question

Quizplus · Accepted Answer

The liquidation value per common share is calculated by determining the net realizable value of assets minus liabilities, then dividing by the number of shares. Current assets are 90% of $9 million, land appreciated to $6.7 million, and bonds are valued at $10.8 million due to interest rate changes. After adjusting for liabilities, the remaining value is divided by the number of shares (800,000) to get $22.71 per share.

Assiniboine Mills, Incorporated Ten Years Ago, Shows on Its Year-End