The value of Broadway-Brooks Inc.\'s operations is $900 million, based on the fr
ID: 2728596 • Letter: T
Question
The value of Broadway-Brooks Inc.'s operations is $900 million, based on the free cash flow valuation model. 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 $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock's price per share?
Explanation / Answer
Total value of equity can be found as
= Value of operation + value of short-term investments that are unrelated to operations - notes payable - short term debt - preferred stock
= 900 + 30 - 110 - 90 - 20 =$ 710 MN
Total shares outstanding is 25 MN
So best estimated stock price per share is 710/25= $28.4 per share
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