Question

Based on the corporate valuation model, Morgan Inc.’s total corporate value is $325 million. The balance sheet shows $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock’s price per share?

Answer 1

Answer:

$25.5

Explanation:

Morgan Inc.’s total corporate value = $325 million

notes payable = $90 million

long-term debt = $30 million

preferred stock = $40 million

common equity = $100 million

shares of stock outstanding = $100 million

Market Value of company

= Market Value of debt + Market Value of preferred + Market Value of equity

$325 million = $30 million + $40 million + Market Value of equity

or

Market Value of equity = $325 million - $30 million - $40 million

= $255 million

Share price = $\frac{\textup{Market Value of equity}}{\textup{shares of stock outstanding}}$

= $\frac{\ 255 million}{10 billion}$

= $25.5