Based on the corporate valuation model, the value of a company\'s operations is

Question

Based on the corporate valuation model, the value of a company's operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Explanation / Answer

Plugin your values in the following solution.comment me if you are not clear Based on the corporate valuation model, the value of a company’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 not related 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 the company has 30 million shares of stock outstanding, what is the best estimate of the stock’s price per share Market Value of company = 1200M + 100M = 1300M MV of company = MV of debt + MV of preferred + MV of equity = 420M + 50M + MV Equity => MV Equity = 1300M - 420M - 50M = 830M (assume book value of debt approximately = MV debt) => share price = 830/30 = $27.67

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