Question

Based on the corporate valuation model, the total corporate value of Chen Lin Inc. is $500 million. Its balance sheet shows $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 its stock price per share

Answer 1

Answer:

The best estimate of its stock price per share is $11.20

Explanation:

To compute stock price per share, the equation is shown below:

= Total number of equity ÷ Outstanding number of shares

where,

Total number of equity = Total corporate value - Notes payable - long term debt - preferred stock

= $500 - $110 - $90 - $20

= $280 million

And , outstanding number of shares is 25 million shares

Now, apply the above equation

So, stock price per share = $280 million ÷ 25 million shares = $11.20

Other accounts like retained earnings, total common equity is irrelevant

Hence, the best estimate of its stock price per share is $11.20