A public company has a book value of $128 million.They have 20 million shares outstanding,with a market price of $4 per share.Which of the following statements is TRUE regarding this company?
A)Investors may consider this firm to be a growth company.
B)Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value.
C)The firm's market value is more than its book value.
D)The value of the firm's assets are greater than their liquidation value.
E)The firm's market-to-book ratio is greater than 1.

Question

Quizplus · Accepted Answer

DB) The market value of the company is $80 million (20 million shares at $4 each), which is less than its book value of $128 million. This could indicate that investors believe the company's assets are not likely to be as profitable in the future, hence the lower market valuation.D) The book value is a measure of the company's assets minus its liabilities, essentially what would be left if the company were liquidated. Since the book value is positive ($128 million), it suggests that the value of the firm's assets is greater than their liquidation value.

A Public Company Has a Book Value of $128 Million