Question

Bauer software's current balance sheet shows total common equity of $5,125,000. the company has 650,000 shares of stock outstanding, and they sell at a price of $27.50 per share. by how much do the firm's market and book values per share differ? (round your intermediate and final answer to two decimal places.)

Answer 1

Answer: $19.62

Explanation:

Common Equity shown in the balance sheet is always shown at its par value.

Common Equity (Par value) : $5,125,000

Number of shares: 650,000

Book value per share = Common Equity (par value) ÷ Number of shares

Book value per share = $5,125,000 ÷ 650,000

Book Value per share = $7.88

Market Value per share = $27.50

Difference between Firm's Market value and book value = $27.50 - $7.88

Difference between Firm's Market value and book value = $19.62

Answer 2

The firm's market value and book value per share differs by $19.62.

We follow the following steps to arrive at the answer:

Book Value per share = Total Common equity / No. of stock outstanding

Book Value per share = $ 7.88 (5,125,000/650,000)

Market Price per share = $27.50

Market Price per share - Book Price per share = $27.50 - $.7.88 = $19.62.