Question

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000...

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?

How does the difference in these values matter to the firm? Explain.

Please explain the second part briefly.

Thank you.

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Homework Answers

Answer #1

Book Value of Equity = 3,125,000

Market Value of Equity = 125,000 * 52.50 = 6,562,500

Difference betwen the Market and Book Values = 6,562,500 - 3,125,000 = 3,437,500

The difference between the Book Values and the Market shows the performance of the company or the Management. In other words, the difference is the value addition over and above the Book Values. Also, show the setiments of the market on the compnay's stock.

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