Based on the free cash flow valuation model, the value of Weidner Co.'s operations is $1,200 million.The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations.The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity.If Weidner has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?
A) $24.90
B) $27.67
C) $30.43
D) $33.48
E) $36.82

Question

Quizplus · Accepted Answer

To determine the value of the common equity, we need to subtract the value of debt and preferred stock from the total value of operations:
Value of Equity = Value of Operations - Debt - Preferred Stock
Value of Equity = $1,200 million - $120 million - $50 million
Value of Equity = $1,030 million

Next, we need to subtract the value of non-operating assets and add the value of non-operating liabilities to get the net value of assets attributable to common equity:
Net Value of Assets = Value of Equity - Non-operating Assets + Non-operating Liabilities
Net Value of Assets = $1,030 million - $100 million + $90 million
Net Value of Assets = $1,020 million

Finally, we can calculate the estimated stock price by dividing the net value of assets by the number of shares outstanding:
Estimated Stock Price = Net Value of Assets / Number of Shares Outstanding
Estimated Stock Price = $1,020 million / 30 million
Estimated Stock Price = $27.67 per share

Therefore, the best estimate of the stock's price per share is option B: $27.67.

Based on the Free Cash Flow Valuation Model, the Value