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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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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.

Summary Introduction

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.

Explanation

Given,

Market/book ratio is 2.

Formula to calculate market/book ratio,

Market/Bookratio=MarketpricepershareBookvaluepershare

Substitute 2 for market/book ratio and $36.11 for book value per share (working note) in the above formula.

2=Marketpricepershare$36.11Marketpricepershare=2×$36

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