Question

The table below contains data on Fincorp Inc. The balance sheet items correspond to values at year-end 2015 and 2016, while the income statement items correspond to revenues or expenses during the year ending in either 2015 or 2016. All values are in thousands of dollars. 2016 $4,100 1,700 520 350 550 150 Revenue Cost of goods sold Depreciation Inventories Administrative expenses Interest expense Federal and state taxes* Accounts payable Accounts receivable Net fixed assetst Long-term debt Notes payable Dividends paid Cash and marketable securities 2015 $4,000 1,600 500 300 500 150 400 300 400 5,000 2,000 1,000 410 800 420 350 450 5,800 2,400 600 410 300 * Taxes are paid in their entirety in the year that the tax obligation is incurred. T Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed. Suppose that the market value (in thousands of dollars) of Fincorp's fixed assets in 2016 is $6,000 and that the value of its long-term debt is only $2,200. In addition, the consensus among investors is that Fincorp's past investments in developing the skills of its employees are worth $2,900. This investment of course does not show up on the balance sheet. What will be the price per share of Fincorp stock? (Assume 500,000 shares of stock outstanding.) (Round your answer to 2 decimal places.) Price per share

Answer 1

Hello,

Below are the steps to answer the questions:

1. Classify given items into balance sheet and income statement
2. Balance sheet items are used to calculate value per share. Thus select balance sheet items from above list.
3. For such selected items, replace book value with market value
4. Add any balance sheet items which is separately given and is not part of above list
5. Segregate all balance items into Assets and Liabilities
6. Calculate Net Worth as Total Assets Less Total Liabilities
7. Price per share is Net worth divided by total number of outstanding shares.

Thus, following the above steps, we arrive at a fair value of $13.7 per share. Please refer to below snapshot.

Figures in $'000 unless mentioned Particluars Book Value Market Value Inventories 350 350 Accounts Receivable 450 450 Net Fixed Assets 5,800 6,000 Cash and Marketable Securites 300 300 Investment in Training 2,900 Total Assets 6,900 10,000 0 Accounts Payable Long Term Debt Notes Payable Total Payables 350 2,400 600 3,350 350 2,200 600 3,150 3,550 35,50,000 Net Worth Net Worth (in $) No of Shares Fair Value per Share (in $) 6,850 68,50,000 5,00,000 13.7