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 unrelated 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? a. $24.90 b. $27.67 c. $30.43 d. $33.48 e. $36.82
b. $27.67 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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