Question

You are given the following information: Stockholders’ equity asreported on the firm’s balance sheet = $3.75 billion, price/earnings ratio = 3.5, commonshares outstanding = 50 million, and market/book ratio = 1.9. Calculate the price of a shareof the company’s common stock.

Answer 1

Answer:

The price of a share of the company’s common stock is $142.50

Explanation:

Through by applying the market book ratio, first we have to find out the book value per share which is shown below:

Book value of share = Equity ÷ common shares outstanding

                                 = $3750 million ÷ 50 million

                                 = $75

We convert the $3.75 billion to million

Now we know that

Market/book ratio = Market value per share ÷ book value per share

1.9 = Market value per share ÷ $75

So, the market value per share = $142.50