Chapter 4, Problem 1QP

a.

Summary Introduction

To calculate: The added market value.

Explanation of Solution

Computation of the market value added:

$\begin{array}{c}\text{Market value}=\text{Shares outstanding}\times \text{Market price per share}\\ \text{=\$657 million}\times \text{\$83}\\ \text{=\$54,531 million}\end{array}$

$\begin{array}{c}\text{Market value added}=\text{Market value}-\text{Equity}\\ \text{=\$54,531}-\$17,532\\ =\$36,999\end{array}$

Hence, the market value added is $36.999.

b.

Summary Introduction

To compute: The market to book ratio.

Explanation of Solution

Computation of the market to book ratio:

$\begin{array}{c}\text{Market to book ratio}=\frac{\text{Market value }}{\text{Equity}}\\ =\frac{54,531}{17,532}\\ =3.11\end{array}$

Hence, the market to book ratio is 3.11.

c.

Summary Introduction

To discuss: The value created by the company for the shareholders as a percent of the equity to the shareholders.

Explanation of Solution

The company has maximized the value of the investment in equity by $36,999 million that is 211% of the equity of shareholders on the balance sheet.