Question

The Dodd Corporation, has 100,000 shares of common stock owned by its founder. Dodd owes $1,300,000 to its bank. Dodd has 11,400 customers. If the average ratio of total entity value to customers is $500 for a group of comparable public companies, what is its estimated stock value on a per share basis?

Answer 1

$44 per share

Step-by-step explanation:

The computation of the estimated stock value on a per share basis is shown below:

Total entity value is

= Total customer × average ratio

= 11,400 customers × $500

= $5,700,000

The value to the shareholder is

= Total value of the entity - debt

= $5,700,000 - $1,300,000

= $4,400,000

Now the estimated stock value on a per share basis is

= Value to the shareholder ÷ common stock shares

= $4,400,000 ÷ 100,000 shares

= $44 per share