EBK FUNDAMENTALS OF CORPORATE FINANCE
EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 4, Problem 1QP

Market Value Added. Here is a simplified balance sheet for Locust Farming:

Chapter 4, Problem 1QP, Market Value Added. Here is a simplified balance sheet for Locust Farming: Locust has 657 million

Locust has 657 million shares outstanding with a market price of $83 a share.

  1. a. Calculate the company’s market value added.
  2. b. Calculate the market-to-book ratio.
  3. c. How much value has the company created for its shareholders?

a.

Expert Solution
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Summary Introduction

To calculate: The added market value.

Explanation of Solution

Computation of the market value added:

Market value=Shares outstanding×Market price per share=$657 million×$83=$54,531 million

Market value added=Market valueEquity=$54,531$17,532=$36,999

Hence, the market value added is $36.999.

b.

Expert Solution
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Summary Introduction

To compute: The market to book ratio.

Explanation of Solution

Computation of the market to book ratio:

Market to book ratio=Market value Equity=54,53117,532=3.11

Hence, the market to book ratio is 3.11.

c.

Expert Solution
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Summary Introduction

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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