Here is a simplified balance sheet for Locust Farming: Locust has 664 million sh

Question

Here is a simplified balance sheet for Locust Farming:

Locust has 664 million shares outstanding with a market price of $90 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?

Locust Farming Balance Sheet ($ in millions) Current assets $ 42,531 Current liabilities $ 29,748 Long-term assets 46,846 Long-term debt 27,759 Other liabilities 14,331 Equity 17,539 Total $ 89,377 Total $ 89,377

Explanation / Answer

Answer a.

Market Value of Equity = Market Price per share * Number of shares outstanding
Market Value of Equity = $90 * 664 million
Market Value of Equity = $59,760 million

Market Value Added = Market Value of Equity - Book Value of Equity
Market Value Added = $59,760 million - $17,539 million
Market Value Added = $42,221 million

Answer b.

Market-to-book Ratio = Market Value of Equity / Book Value of Equity
Market-to-book Ratio = $59,760 million / $17,539 million
Market-to-book Ratio = 3.41

Answer c.

Company has created value of 341% for its shareholders.

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