Analysis of past monthly movements in IBM\'s stock price produces the following

Question

Analysis of past monthly movements in IBM's stock price produces the following estimates: = 2.5% and = 1.6. If the market index subsequently rises by 12% in one month and IBM's stock price increases by 20%, what is the abnormal change in IBM's stock price?

(a).

Assume a book value per share of $10 and a price per share of $24, what is the market capitalization of a firm with 2,000,000 outstanding shares?

(b).

Assume a book value per share of $5 and a price per share of $12. What is the market value added of a firm with 2,000,000 outstanding shares?

(a).

Assume a book value per share of $10 and a price per share of $24, what is the market capitalization of a firm with 2,000,000 outstanding shares?

Explanation / Answer

a.

Price per share = $24

Number of share outstanding = 2,000,000

Market capitalization = Price per share × number of share outstanding

                                       = $24 × 2,000,000

                                        = $48,000,000

Hence, Market capitalization is $48,000,000.

b.

Price per share = $12

Number of share outstanding = 2,000,000

Market capitalization = Price per share × number of share outstanding

                                       = $12 × 2,000,000

                                        = $24,000,000

Hence, Market capitalization is $24,000,000.

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