Question

       Oliver Learning is a retailer focused on education supplies. The company has a book value...

  1.        Oliver Learning is a retailer focused on education supplies. The company has a book value of $43.98 per share. Oliver Learning has a PB ratio of 8.80 and the education supplies industry PB ratio is 6.46.

Assuming that comparable industry companies are priced correctly the intrinsic value of Oliver Learning’s equity per share is:

  1.    Undervalued $102.91 per share
  2.    Overvalued $102.91 per share
  3.    Priced correctly
  4.    Overvalued by $43.98 per share
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Homework Answers

Answer #1

The correct answer is Option B

Oliver Learning

Price to Book Value ratio = Market Price per share / book value per share

8.80 = Market Price per share / 43.98

Market Price per share = 43.98 * 8.80

Market price= 387.024

Industry Price to book value ratio

Price to Book Value ratio = Market Price per share / book value per share

6.46 = Market Price per share / 43.98

Market Price per share = 43.98*6.46

Market Price = 284.1108

So, We can see that the Oliver learning has much higher share price than the industry standards, so the share price is overvalued

= Market Price per share of Oliver learning - Market Price per share of industry standards

= 387.024 - 284.1108

= $102.91

The correct option is B

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