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Yellowstone is an oil company. It is planning to enter the stock market soon. The financial...

Yellowstone is an oil company. It is planning to enter the stock market soon. The financial advisor of the company recommended that the company’s stocks could be valuated using the P/B multiples (Price = market price of stocks; Book value of stocks). Right now, the company has the following book values: 400 million in equity, 200 million in debt and 10 million in excess cash. Besides that, the company has 30 million shares outstanding and its WACC is 16.5% and your analysis suggest that the net debt market value will be 285 million. You are presented with the following table to value Yellowstone’s stock:

Industry Oil exploration Oil production Sugar cane Gold
Average $14,20 $22,45 $16,32 $7,68
P/B ratio 1,2 1,8 1,5 3,2

What should be the Yellowstone stock price?

A. 18,33

B. 19,67

C. 20,00

D. 37,86

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Answer #1

Correct answer: C. 20.00

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