Question

Based on the corporate valuation model, SG Telecom's total corporate value is $750 million. Its balance sheet shows $100 million notes payable, $200 million of long-term debt, $40 million of common stock, and $160 million of retained earnings, with a WACC of 10%. If the company has 36 million shares of stock outstanding, what is its price per share?

Your answer should be between 5.04 and 58.72

Answer 1

Price per share= Value of equity / No. of shares of stock outstanding

So value of equity =Total market value less Long term and short term Debt

Total market value = Value of operations + Value of non operating assets

Total market value = $750 million (given in question)

Debt = Notes payable + Long term debt

=$(100 + 200)million

= $300 million

Value of equity = $(750 - 300) million

=$450 million

Price per share = 450/ 36

=$ 12.50 / share

Note ÷

1. Assumed notes payable is long term debt.

2.The book value of common stock i.e. $40 and retained earnings i.e. $160 is not relevant given in the question.