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

Answer 1

Answer:

$28.40

Explanation:

Calculation of the estimate of the stock's price per share of Broadway-Brooks Inc.'s

In a situation where the book value of debt is close to its market value, that means the total market value of the company will be:

Total market value= Value of operations + Value of non-operating assets

$900 + $30 = $930

The Value of Equity will be:

Total Market Value - (Note payable +Long -term debt + Preferred Stock)

=930-(110 +90+20)

=930-220

=$710

The Stock price will therefore be:

Value of Equity/Shares outstanding

$710/25

= $28.40

The book value of the equity amount and working capital account numbers given in the question will be irrelevant to solve this problem.

Therefore the estimate of the stock's price per share will be $28.40