At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. If Tangshan could sell its assets for $52.5 million, Tangshan's liquidation value per share of common stock is ________.
A) $15
B) $7.50
C) $52.50
D) $75

Question

Quizplus · Accepted Answer

In a liquidation scenario, all assets are sold and the proceeds are distributed to creditors and shareholders. The liquidation value per share of common stock is the amount that each shareholder would receive if all assets were sold and all liabilities were paid off.

Liquidation value per share of common stock = (Total assets - Total liabilities) / Number of common shares outstanding
Liquidation value per share of common stock = ($52.5 million - $45 million) / 1,000,000
Liquidation value per share of common stock = $7.50

At Year End, Tangshan China Company Balance Sheet Showed Total