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Sam Co.’s current balance sheet shows total common equity of $525,000. It has 99,000 shares of...

Sam Co.’s current balance sheet shows total common equity of $525,000. It has 99,000 shares of stock outstanding, and they sell at a price of $26.50 per share. By how much do the firm's market and book values per share differ?

a. $21.197

b. $20.084

c. $19.119

d. $18.069

Swinnerton Clothing Company's balance sheet showed total current assets of $900, all of which were required in operations. Its current liabilities consisted of $200 of accounts payable, $500 of 6% short-term notes payable to the bank, and $90 of accrued wages and taxes. What was its net operating working capital that was financed by investors?

a. $-610

b. $ 610

c. $-110

d. $ 110

Over the years, Janjigian Corporation's stockholders have provided $18,000 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings. The firm now has 400 shares of common stock outstanding, and it sells at a price of $50.00 per share. How much value has Janjigian's management added to stockholder wealth over the years, i.e., what is Janjigian's MVA?

a. $3,000

b. $2,500

c. $2,000

d. $1,500

Solutions

Expert Solution

Q-1) Book Value per share = Total Book Value of Common Equity/No of shares outstanding

= $525,000/99,000

Book Value per share = $5.303

Market Value per share = $26.50

The amount by which the firm's market and book values per share differ = $26.50 - $5.303

The amount by which the firm's market and book values per share differ = $21.197

Option A

Q-2) Net Operating Working Capital = Current Assets - Accounts Payable - Accured wages & taxes (Notes Payable are not part of Operating working capital)

Net Operating Working Capital = $900 - $200 - $90

Net Operating Working Capital = $610

Option B

Q-3)

Market Value added(MVA) = (Market Price per share*No of shares outstanding) - Total capital

MVA = ($50*400) - $18000

MVA = $2000

Option C

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