Question

Here is a simplified balance sheet for Locust Farming: Locust Farming Balance Sheet ($ in millions) Current assets $ 42,524 Current liabilities $ 29,755 Long-term assets 46,832 Long-term debt 27,752 Other liabilities 14,317 Equity 17,532 Total $ 89,356 Total $ 89,356 Locust has 657 million shares outstanding with a market price of $83 a share. a. Calculate the company’s market value added. (Enter your answers in millions.) b. Calculate the market-to-book ratio. (Round your answer to 2 decimal places.) c. How much value has the company created for its shareholders as a percent of the investment of the equity holders?

Answer 1

Answer:

The market value added is $36,999 million

The market-to-book ratio 311.04%

The valued created as percentage of investment in equity is 211.04%

Explanation:

The company's market value added is the difference between market value of a company and amount of finance contributed by the providers of funds, both equity and debt-holders

It is denoted with below formula:

MVA=V-K

where V is the market valuation and K the book value

Since the debt market value is the same as book value, it implies that it is the same on both sides,the MVA can be taken as the difference market value of equity and book value of equity

Market value of equity=657*$83=$54531

Book value of equity$17532

MVA=$54531-$17532=$36,999  

Market to book ratio=54531/17532=311.04%

The company has created for its shareholders the excess of market value of equity over book value, which $36,999  ($54531-$17532)

The value created as percentage of the investment of shareholders is

36999/17532=211.04%