Question

Ashley Inc.’s total value is $950 million. Its balance sheet shows $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, and $200 million of common equity. Ashley has no preferred stock. Assume Ashley has 100 million shares of common stock, what is the best estimate for the Ashley’s stock price?

Answer 1

Answer: $7.50

Explanation:

Given that,

Total value = $950 million

Accounts payable = $100 million

Notes payable = $100 million

Long-term debt = $200 million

common equity = $200 million

shares of common stock = 100 million

Value of equity = Value of firm - Value of preferred stock - Value of long term debt.

                         = $950 million - 0 - $200 million

                         = $750 million

$Value\ of\ stock = \frac{Value\ of\ equity}{Number\ of\ shares}$

$Value\ of\ stock = \frac{750}{100}$

                                 = $7.50