Question
In: Finance
Here is a simplified balance sheet for Locust Farming: Locust Farming Balance Sheet ($ in millions)...
Here is a simplified balance sheet for Locust Farming:
| Locust Farming | |||||||
| Balance Sheet | |||||||
| ($ in millions) | |||||||
| Current assets | $ | 42,524 | Current liabilities | $ | 29,755 | ||
| Long-term assets | 46,832 | Long-term debt | 27,752 | ||||
| Other liabilities | 14,317 | ||||||
| Equity | 17,532 | ||||||
| Total | $ | 89,356 | Total | $ | 89,356 | ||
Locust has 657 million shares outstanding with a market price of $83 a share.
a. Calculate the company’s market value added. (Enter your answers in millions.)
b. Calculate the market-to-book ratio. (Round your answer to 2 decimal places.)
c. How much value has the company created for its shareholders as a percent of the investment of the equity holders?
Solutions
Expert Solution
a. Market value of equity = No of shares outstanding x Price per share = 657 million x 83 = 54531
Book value of equity = $17532
Total Market value of company = Market value of equity + Market value of debt
Book value of Company = Total capital contributed = Book value of equity + Book value of debt
Market value added = Total Market value of company - Total capital contributed = Total Market value of company - Total Book value of company = Market value of equity + Market value of debt Market value of equity - Book value of equity - Book value of debt
Here in this question book value of debt = market value of debt because market value of debt is not given
Market value added = Market value of equity - Book value of equity = 54531 - 17532 = $36399 million
Market value added = $36399 million
b. Market to book ratio = Market value of equity / Book value of equity = 54531 / 17532 = 3.1103 = 3.11 (rounded to two decimal places)
Hence Market to book ratio =3.11
c. Value created by company for its shareholders = Total market value of equity / Book value of equity = 54531 / 17532 = 3.11 = 311%
Value created by company for its shareholder as percent of investment by equity holders = 311% of equity investment
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Assets
Liabilities & Equity
Current
$120
Net
Fixed
$180
Bonds ($1000
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Preferred stocks ($100 Par) 50
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Common Stock ($1
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(millions of dollars):
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Accounts payable
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Receivables
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Notes payable
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Inventories
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Line of credit
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Accruals
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Total current liabilities
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Some balance sheet information is shown here (all values n
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Net sales
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Cost of goods sold
755.00
Depreciation
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Earnings before interest and taxes (EBIT)
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$
887.00
Cost of goods sold
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Depreciation
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Earnings before interest and taxes
(EBIT)
$
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Interest expense
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Income before tax
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Taxes
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(Figures in $
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Corporation:
INCOME
STATEMENT
(Figures in $
millions)
Net sales
$
888.00
Cost of goods sold
748.00
Depreciation
38.00
Earnings before interest and taxes (EBIT)
$
102.00
Interest expense
19.00
Income before tax
$
83.00
Taxes
17.43
Net income
$
65.57
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Current assets
$
376
$
326
Long-term assets
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Cost of goods sold 753.00
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Earnings before interest and taxes (EBIT) $ 97.00
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Net income $ 57.67
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Long-term assets 282 234
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(Figures in $
millions)
Net sales
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Cost of goods sold
747.00
Depreciation
37.00
Earnings before interest and taxes (EBIT)
$
103.00
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Income before tax
$
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$
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$
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