Question

Here is a simplified balance sheet for Locust Farming:

Locust Farming
Balance Sheet
($ in millions)
Current assets	$	42,539		Current liabilities	$	29,740
Long-term assets		46,862		Long-term debt		27,767
				Other liabilities		14,347
				Equity		17,547
Total	$	89,401		Total	$	89,401

Locust has 660 million shares outstanding with a market price of $98 a share.

a. Calculate the company’s market value added. (Enter your answers in millions.)

b. Calculate the market-to-book ratio. (Round your answer to 2 decimal places.)

c. How much value as the company created for its shareholders as a percent of shareholders’ equity, that is, the net capital contributed to the firm by its shareholders? (Enter your answer as a percentage rounded to the nearest whole number.)

Answer 1

Solution:

a) Calculate company's market value added as follows:

Market value of equity = Number of shares outstanding * Market price per share

=$660 million *98

=$64,680 million

Market value added = Market value of equity - Book value of equity

=$64,680 million - $17,547 million

=$47,133 million

b)

Market to book ratio = Market value of equity / Book value of equity

=$64,680 million / $17,547 million

=3.85 times

c)

Increase in value of equity = Market value - Book value / Book value

=$67,680 - $17,547 /$17,547

=285%

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answered by: anonymous