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An analyst gathers the following data from a firm's latest annual financial statements:Sales: $5,250Net Income (Profit after tax): $258Assets: $15,000Debt: $8,000The analyst notes the following additional information:Price to Book Value ratio (P/BV): 3Number of shares outstanding: 3,468Based on this information, what is the firm's current market share price (per share)? (please do not enter the $ symbol)

Question

An analyst gathers the following data from a firm's latest annual financial statements:Sales: 5,250NetIncome(Profitaftertax):5,250Net Income (Profit after tax): 258Assets: 15,000Debt:15,000Debt: 8,000The analyst notes the following additional information:Price to Book Value ratio (P/BV): 3Number of shares outstanding: 3,468Based on this information, what is the firm's current market share price (per share)? (please do not enter the $ symbol)

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Solution

To calculate the firm's current market share price, we first need to calculate the firm's book value. The book value is calculated as the total assets minus the total debt.

Step 1: Calculate the Book Value Book Value = Total Assets - Total Debt Book Value = 15,00015,000 - 8,000 Book Value = $7,000

Next, we use the Price to Book Value ratio (P/BV) to calculate the market value. The market value is calculated as the book value times the P/BV ratio.

Step 2: Calculate the Market Value Market Value = Book Value * P/BV Market Value = 7,0003MarketValue=7,000 * 3 Market Value = 21,000

Finally, we divide the market value by the number of shares outstanding to get the market share price.

Step 3: Calculate the Market Share Price Market Share Price = Market Value / Number of Shares Outstanding Market Share Price = 21,000/3,468MarketSharePrice=21,000 / 3,468 Market Share Price = 6.05

So, the firm's current market share price is $6.05 per share.

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