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What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 8?

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Nyctalus

Answer: $80

Explanation: The above value can be computed using following equations:-

[tex]8=\frac{market\:value}{book\:value}[/tex]

where,

[tex]book\:value\:per\:share=\frac{Total\:market\:value}{No.\:of\:shares}[/tex]

[tex]book\:value\:per\:share=\frac{5\:million}{500,000}[/tex]

                                               = $10

Now, putting the values into initial equation we get :-

[tex]8=\frac{market\:value}{\$10}[/tex]

so,

price or market value = $80

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