Question

Based on the corporate valuation model, Gray Entertainment's total corporate value is $1,025 million. The company’s balance sheet shows $120 million of notes payable, $300 million of long-term debt, $50 million of preferred stock, $180 million of retained earnings, and $800 million of total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of its price per share?

Answer 1

To estimate the price per share for Gray Entertainment, subtract the sum of notes payable, long-term debt, and preferred stock from the total corporate value to determine the total common equity value. Then, divide this by the total number of shares outstanding. The estimated price per share is $18.50.

Step-by-step explanation:

Based on the corporate valuation model, to find the price per share of Gray Entertainment, you need to calculate the equity value available to common stockholders and then divide by the number of shares outstanding.

This involves subtracting the company's debt, notes payable, and preferred stock from its total corporate value to find the total common equity value, which will then give us the market value of equity.

Given that the company's total corporate value is $1,025 million, and it has $120 million of notes payable, $300 million of long-term debt, and $50 million of preferred stock, we subtract these from the total corporate value to find the total common equity value. We then divide this by the number of shares outstanding, which is 30 million.

To calculate: Total Common Equity Value = $1,025 million - ($120 million + $300 million + $50 million) = $555 million

Then, Price Per Share = Total Common Equity Value / Shares Outstanding

Price Per Share = $555 million / 30 million = $18.50 per share.