Haliburton Galleries Ltd. (HGL) is a small, but well established, fine art store. Unlisted and closely held, the company has 2,500 shares outstanding at an issue price of $350 and uses EVA for rewarding performance. The Board of Directors would like to determine the current value of the company's shares as a guide to projecting the potential cash flow from a planned share issue. Year-end adjusted EBIT after tax equals $850,000, adjusted net assets equal $2.6 million, market value of debt is $900,000, retained earnings equal $940,000 and the company's cost of capital is 14%. What is the value of a share in HGL?

Question

Quizplus · Accepted Answer

To determine the value per share, we can use the following formula:

Value per share = (Adjusted EBIT - (Cost of capital x Adjusted net assets - Market value of debt - Retained earnings)) / Number of shares outstanding

Plugging in the given values:

Value per share = ($850,000 - (0.14 x $2.6 million - $900,000 - $940,000)) / 2,500
Value per share = ($850,000 - $146,000) / 2,500
Value per share = $321.60

Therefore, the current value of Haliburton Galleries Ltd. shares is $321.60, which is closest to option C ($497.14) in the given choices.