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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

M/B AND SHARE PRICE You are given the following information: Stockholders’ equity as reported on the firm’s balance sheet = $3.75 billion, price/earnings ratio = 3.5, common shares outstanding = 50 million, and market/book ratio = 1.9. Calculate the price of a share of the company’s common stock.

Summary Introduction

To determine: Price of share of company’s common stock.

Market/Book Ratio: It represents the relationship between market price per share and book value per share. More is the market/book ratio, better is the firm’s condition.

Explanation

Solution:

Given,

Market/book ratio is 1.9.

Calculated values (working note),

Book value per share is $75.

Formula to calculate market/book ratio,

Market/BookRatio=MarketPriceperShareBookValueperShare

Substitute 1.9 for market/book ratio and $75 for book value per share.

1.9=MarketPriceperShare$75MarketPriceperShare=1

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