Question 1

BFG has current assets of $800,000, which can be liquidated at 90 percent of book value. Total liabilities, including preferred stock, equal $270,000. The firm has 15,000 shares of common stock outstanding. What is the liquidation value per share of common stock?

Accepted Answer

The answer of BFG has current assets of $800,000, which...

Question 2

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. Next year, Tangshan is projecting that it will have net income of $1.5 million. If the average PE multiple in Tangshan's industry is 15, what should be the price of Tangshan's stock?

Accepted Answer

The answer of At year end, Tangshan China Company balance...

Question 3

Karina's Caribbean Foods had total assets as recorded on its balance sheet are $1,500,000. What is the value of the Karina's common stock if it has $950,000 in liabilities, and 7,500 shares of common stock outstanding?

Accepted Answer

The answer of Karina's Caribbean Foods had total assets as...

Question 4

________ is a guide to the firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.

Accepted Answer

The P/E multiple is a guide to the firm's value based on how investors value earnings compared to the average for the industry. It can help to determine whether a stock is overvalued or undervalued. Liquidation value is the value of the assets of the firm if they were sold off, while book value is the value of a firm's assets on its balance sheet. The present value of dividends is a measure of the value of future cash flows to investors.

Question 5

The book value per share of common stock is the amount per share of common stock that would be received if all of the firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.

Accepted Answer

This definition accurately describes the book value per share of common stock.

Question 6

BFG, Inc. stock currently sells for $75 per share. The firm has total assets of $1,000,000 and total liabilities, including preferred stock, of $350,000. If the firm has 10,000 shares of common stock outstanding,
(a) what is the book value of each share of common stock?
(b) is the stock overvalued or undervalued in the marketplace?
(c) what might be the reason(s) for your answer in (b).

Accepted Answer

The answer of BFG, Inc. stock currently sells for $75...

Question 7

Patrick Company expects to generate free-cash of $120,000 per year forever. If the firm's required return is 12 percent, the market value of debt is $300,000, the market value of preferred stock is $70,000, and the company has 100,000 shares of stock outstanding. What is the value of Patrick's stock?

Accepted Answer

The answer of Patrick Company expects to generate free-cash of...

Question 8

________ is the value of the firm's ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock) are divided among common stockholders.

Accepted Answer

The answer of ________ is the value of the firm's...

Question 9

The use of the ________ is especially helpful in valuing firms that are not publicly traded.

Accepted Answer

The answer of The use of the ________ is especially...

Question 10

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. Based on this information, Tangshan's book value per share of common stock is ________.

Accepted Answer

The answer of At year end, Tangshan China Company balance...

Question 11

Based on analysis of the company and expected industry and economic conditions, China Imports is expected to earn $4.60 per share of common stock next year. The average price/earnings ratio for firms in the same industry is 8. Calculate the estimated value of a share of China Imports common stock.

Accepted Answer

The answer of Based on analysis of the company and...

Question 12

Due to growing demand for computer software, the Perry Company has had a very successful year and expects its earnings per share to grow by 25 percent to reach $5.50 for this year. Estimate the price of the company's common stock assuming the industry's price/earning ratio is 12.

Accepted Answer

The answer of Due to growing demand for computer software,...

Question 13

The liquidation value per share of common stock is the amount per share of common stock that would be received if all of the firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.

Accepted Answer

The answer of The liquidation value per share of common...

Question 14

Scooter World has estimated the market value of its assets to be $1,250,000. What is the value of Scooter Wrold's common stock if it has $900,000 in liabilities, $50,000 in preferred stock, and 7,500 shares of common stock outstanding?

Accepted Answer

The answer of Scooter World has estimated the market value...

Question 15

________ is the actual amount each common stockholder would expect to receive if the firm's assets are sold, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

Accepted Answer

Liquidation value refers to the amount that common stockholders can expect to receive after all debts and obligations have been paid off in the event of the company's liquidation or bankruptcy. It is calculated by dividing the remaining assets after paying off debts and obligations by the number of outstanding shares of common stock.

Question 16

Nico Corporation expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 percent per year forever. If the firm's average cost of capital is 15 percent, the market value of the firm's debt is $500,000, and Nico has a half million shares of stock outstanding, what is the value of Nico's stock?

Accepted Answer

The answer of Nico Corporation expects to generate free-cash flows...

Question 17

China Imports currently has 2,000 shares of common stock outstanding. The firm has assets of $200,000 and total liabilities including preferred stock of $75,000. Calculate the book value per share of China Imports common stock.

Accepted Answer

The answer of China Imports currently has 2,000 shares of...

Question 18

The current price of DEF Corporation stock is $26.50 per share. Earnings next year should be $2 per share and it should pay a $1 dividend. The P/E multiple is 15 times on average. What price would you expect for DEF's stock in the future?

Accepted Answer

Next year's earnings per share (EPS) = $2
Dividend per share (DPS) = $1
P/E multiple = 15

Using the formula P/E ratio = Price per share / Earnings per share, we can calculate the expected price per share in the future:
15 = Price per share / $2
Price per share = $30

Therefore, we would expect DEF Corporation's stock price to be $30 in the future. Choice D is the correct answer.

Question 19

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 ________.

Accepted Answer

The liquidation value per share is calculated as (total assets - total liabilities)/number of common shares outstanding. 
($52.5 million - $45 million)/1,000,000 = $7.50 per share.

Question 20

Which of the following valuation methods is superior to the others in the list since it considers expected earnings?

Accepted Answer

The P/E multiple valuation method is preferred since it considers the expected earnings of the company. The other options do not take into account the potential earnings of the company and therefore may not provide an accurate valuation.

Quiz 7: Stock Valuation