Concept explainers
Market Value Added. Here is a simplified balance sheet for Locust Farming:
Locust has 657 million shares outstanding with a market price of $83 a share.
- a. Calculate the company’s market value added.
- b. Calculate the market-to-book ratio.
- c. How much value has the company created for its shareholders?
a.
To calculate: The added market value.
Explanation of Solution
Computation of the market value added:
Hence, the market value added is $36.999.
b.
To compute: The market to book ratio.
Explanation of Solution
Computation of the market to book ratio:
Hence, the market to book ratio is 3.11.
c.
To discuss: The value created by the company to their shareholders.
Explanation of Solution
The company has maximized the value of the investment in equity by 311%.
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Chapter 4 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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