At year end, Tangshan China Company balance sheet showed total assets of $60 mil

Question

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding.

(i) if Tangshan could sell its assets for $52.5 million, Tangshan's liquidation value per share of common stock is _______.

      (A) $15.00     (B) $7.50     (C) $52.50     (D) $75.00

(ii) Next year, Tangshan is projecting that it will have net income of $1.5 million. If the average PE multiple in Tangshan's industry is 15, what should be the price of Tangshan's stock?

     (A) $15.00     (B) $22.50     (C) $52.50     (D) $75.00

Explanation / Answer

1) 52500000/1000000 52.5 2) Price = (Net Income/No of Shares) * PE Ratio (1500000/1000000)*15 22.5

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