Question

Based on the free cash flow valuation model, the value of Weidner Co.'s operations is $1,200 million. The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If Weidner has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Answer 1

$27.67

Step-by-step explanation:

Given:

the value of Weidner Co.'s operations = $1,200 million

accounts receivable = $80 million

short-term investments = $100 million

accounts payable = $90 million

notes payable = $120 million

long-term debt = $300 million

preferred stock = $50 million

retained earnings = $180 million

total common equity = $800 million

shares of stock outstanding = 30 million

Now,

The total intrinsic value

= value of operation + short-term investments

or

The total intrinsic value = $1200 million + $100 million = $1300 million

thus,

the total value of the equity

= Total intrinsic value - Debt - preferred stocks - notes payable

or

the total value of the equity

= $1300 million - $300 million - $50 million - $120 million

= $830 million

therefore,

the stock's price per share =
`\frac{\textup{Total value of equity}}{\textup{Total oustanding stocks}}`

or

the stock's price per share =
`\frac{\textup{830 million}}{\textup{30 million}}`

or

the stock's price per share = $27.67