Question

Based on the corporate valuation model, Bernile Inc.’s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm’s value of equity, in millions?

Answer 1

Answer:

$500 million

Explanation:

Assets - Liabilities

= $750 - ($50+$100+$200+$100)

= $750 million - $450 million

=$300 million

Common stock = $40 million, Retained earnings = $160 miillon

Equity = $160 + $40 + $300 = $500 million

So, best estimate for the firm’s value of equity is $500 million.