Question

You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $6.5 billion, price/earnings ratio = 9, common shares outstanding = 76 million, and market/book ratio = 1.6. Calculate the price of a share of the company's common stock. Round your answer to the nearest cent.

Answer 1

Solution:
	Price of a share of the company's common stock = $136.84
Working Notes:
	Book value of a share = shareholder equity / share outstanding
		=$6.5 billion /76 million
		=$6,500 million /76 million
		= $85.526315
	market/book ratio = 1.6
	Market price per share /Book value of a share = 1.6
	Market price per share / $85.526315 = 1.6
	Market price per share = 1.6 x $85.526315
	Market price per share = $136.8421053
	Market price per share = $136.84
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