Based on the corporate valuation model, the value of Josh’s Realtor operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $200 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, $80 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If Weidner has 27 million shares of stock outstanding, what is the best estimate of the stock’s price per share?
Answer : the stock’s price per share: $ 33.33
Working notes for the above answer is as under,
the value of Josh’s Realtor operations is $1,200 million.
The company’s balance sheet shows $80 million in accounts receivable,
$60 million in inventory,
$200 million in short-term investments
$90 million in accounts payable,
$120 million in notes payable,
$300 million in long-term debt,
$80 million in preferred stock,
$180 million in retained earnings,
$800 million in total common equity.
If Weidner has 27 million shares of stock outstanding,
Assuming that book values of debt are close to market values of debt, the total market value of the company is:
= $1200 + $200 = $1400 million.
Market value of equity = Total market value – Value of debt
= $1400 – (Notes payable + Long-term debt + Preffered stock)
== $1400 – (120+300+80)
=$ 1400 – (500)
= $ 900
the stock’s price per share = $ 900 / 27
= $ 33.33
