Question

Haskell Motots common equity on the balance sheet totals $700million and the company has 35 million shares of common stockoutstanding. Haskell has significant growth opportunitew . It'sheadquarters has a book value of 45 MILLION, BUT ITS MARKET VALUEIS ESTIMATEDTO BE $ 10 MILLION. oVER TIME, HASKELL HAS ISSUEDOUTSTANDING DEBT THAT HAS A BOOK VALUE OF $10 MILLION AND A MARKETVALUE $5 MILLION.
WHICH OF THE FOLLOWING STATEMENTS IS MORE CORRECT?

A. HASKEL'S BOOK VALUR PER SHARE IS $20.
b. HASKELL'S MARKET VALUE PER SHARE IS PROBABLY LESS THAN$20.
c. hASKELL'S MARKET VALUE PER SHARE IS PROBABLY GREATERTHAN 20.
D. sTATEMENTS A AND B ARE CORRECT
r. sTSTEMENTS A AND C ARE CORRECT.

Answer 1

Answer:

Statements A and C are correct.

Explanation:

• Book Value per share is the value shown in the balance sheet, which is calculated by:

Formula: $BV = \frac{Total common holder stocks}{number of common shares}$

After putting values in the formula we get:

$BV = \frac{700m}{35m} = 20$

• Market value per share is calculated on the bases of prices of share according to the market. For example, if your company has $10000 share outstanding and the price in market per share is 50 then the market value would be $500000.

So, we have to calculate market value per share for that we have to reverse the actual calculation, which means we will have to divide total market value of outstanding shares  by the total number of outstanding shares to get market value per share:

$MV per Share = \frac{10m}{35m} = 28.5$

Hence, statement A and C both are correct.