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1.
If Acme Company has $5 million in cash and long-term debt of $12 million and a market capitalization of $300 million, what is the firm's enterprise value?
$307 million. Enterprise value is equal to market cap plus long-term debt, minus cash. In Acme's case, that's $300 million + $12 million - $5 million, which yields $307 million.
2.
When valuing a business, which is easier to measure?
Actual assets and liabilities. These can be gleaned in current time from financial statements.
3.
You should determine a company's valuation before buying its stock because doing so will help you see whether its stock is overpriced or underpriced
True. Valuation should be standard procedure for all investors. Buying an overpriced stock is ultimately not very profitable.
4.
Stock valuation ratios compare a company's market value with what?
Any of the above. Valuation ratios compare market value with any of several figures about the company's finances.
5.
Acme Company's shares trade at $15 and the firm has a total of 20 million shares outstanding. What is Acme's market capitalization?
$300 million. Acme's market capitalization is $300 million. Recall that market capitalization is calculated by multiplying a company's share price by its number of shares outstanding.
