Question

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 8?

Answer 1

Answer: $80

Explanation: The above value can be computed using following equations:-

`8=(market\:value)/(book\:value)`

where,

`book\:value\:per\:share=(Total\:market\:value)/(No.\:of\:shares)`

`book\:value\:per\:share=(5\:million)/(500,000)`

= $10

Now, putting the values into initial equation we get :-

`8=(market\:value)/(\$10)`

so,

price or market value = $80