Question

Quest Financial services balance sheets report $200 million in total debt, $100 million in short-term investments,...

Quest Financial services balance sheets report $200 million in total debt, $100 million in short-term investments, and $30 million in preferred stock. Quest has 10 million shares of common stock outstanding. A financial analyst estimated that Quest’s value of operations is $1000 million. What is the analyst’s estimate of the intrinsic stock price per share?

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Answer #1

Value of Operations = Total Debt + Preferred Stock+Common Stock - Short Term Investments

Let common stock be X

$1000 million = $200 million +$30 million + X - $100 million

X = $1000 million - $200 million - $30 million + $100 million

X = $870 million

Value of Common Stock = $870 million

Number of Common Stock outstanding = 10 million

Intrinsic Stock Price Per share = Value of Common Stock / Number of Common Stock outstanding

= $870 million / $10 million = $87 per share

Intrinsic Stock Price Per share = $87 per share

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