ECON
Corporate Value 1

# Using the corporate valuation model the value of a

• Test Prep
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19. Using the corporate valuation model, the value of a company's operations is \$400 million. The company's balance sheet shows \$20 million in short­term investments that are unrelated to operations. The balance sheet also shows \$50 million in accounts payable, \$90 million in notes payable, \$30 million in long­term debt, \$40 million in preferred stock, and \$100 million in total common equity. If the company has 10 million shares of stock, what is your best estimate for the stock price per share? = \$400 + \$20 = \$4200 million. = Total market value ­ Value of debt
Market value of equity = \$420 ­ (Notes payable + Long­term debt + Preferred stock) = \$420 ­ (\$90 + \$30 + \$40) = \$260 million. Price per share = Market value of equity / Number of shares =\$260 / 10 = \$26.
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