Reynolds Construction's value of operations is $750 million based on the free cash flow valuation model.Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings.What is the best estimate for the firm's value of equity, in millions?
A) $429
B) $451
C) $475
D) $500
E) $525

Question

Quizplus · Accepted Answer

The firm's value of equity is calculated as the value of operations plus short-term investments minus all liabilities. This is $750 million (value of operations) + $50 million (short-term investments) - $100 million (accounts payable) - $100 million (notes payable) - $200 million (long-term debt) = $500 million.

Reynolds Construction's Value of Operations Is $750 Million Based on the Free