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Fundamentals of Financial Manageme...
M/B AND SHARE PRICE You are given the following information: Stockholders’ equity as reported on the firm's balance sheet = $6.5 billion, price/earnings ratio = 9, common shares outstanding = 180 million, and market/book ratio = 2.0. Calculate the price of a share of the company’s common stock.
To determine: Price of a share of the company’s common stock.
Introduction:
Market/Book Ratio:
It represents the relationship between the market price per share and book value per share. More is the market/book ratio better is the firm’s condition.
Given,
Market/book ratio is 2.
Formula to calculate market/book ratio,
Substitute 2 for market/book ratio and $36.11 for book value per share (working note) in the above formula.
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