Additional information with respect to the firm is available: (1) Preferred stoc

Question

Additional information with respect to the firm is available:
(1) Preferred stock can be liquidated at book value.
(2) Accounts receivable and inventories can be liquidated at 90% of book value.
(3) The firm has 10,000 shares of common stock outstanding.
(4) All interest and dividends are currently paid up.
(5) Land and buildings can be liquidated at 130% of book value.
(6) Machinery and equipment can be liquidated at 70% of book value.
(7) Cash and marketable securities can be liquidated at book value.
Given this information, answer the following:
a. What is Gallinas Industries

Explanation / Answer

Gallinas Industries

a)Book value per share = (common stock 260000 + retained earnings 100000) / no of equity shares 10000 = $36

b)Liquidation value per share

Liquidation value per common stock = 802000 / 10000 = $80.2

C. Book value per share takes into account the total assets less liabilities including preferred stock divided by no . of equity shares whereas

Liquidation per share denotes certain amounts which the company bank upon in the event of the company going into liquidation

Details Book value Liquidation @ % Liquidation amount Preferred stock 80000 Book value 80000 Accounts receivable and inventories (100000 +160000) 280000 90 252000 Land and buildings 150000 130 195000 Machinary 250000 70 175000 Cash and marketable securities(40000 + 60000) 100000 Book value 100000 Total liquidity 802000

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