Assuming that ZEBRA’ shares were trading at $5, what is the ZEBRA market-to-book
ID: 2567710 • Letter: A
Question
Assuming that ZEBRA’ shares were trading at $5, what is the ZEBRA market-to-book value as of the end of 2016? Would you consider ZEBRA’ stocks as value stocks or glamour stocks? Why?
ZEBRA CORPORATION Balance Sheet ASSETS Current Assets: Cash & Equivalents Inventory Accounts receivable Total Current Assets 17,600 136,500 105,770 259,870 LIABILITIES& SHAREHOLDER EQUITY Current Liabilities Notes Payable Accounts payable Accrued expenses Cureent portion of L-T debt Total Current Liabilties 32,570 50,830 11,850 4,080 99,330 Long-term Assets 284,950 82,310 202,640 462,510 Gross fixed assets Less Accumulated depreciation Total Long-term Assets Total Assets Long-term Liabilties: Long-term debt Total Long term Liabilities Total Liabilities 134,300 134,300 233,630 Shareholder Equity Common Stock ($0.50par) Preferred stock additional paid in capital Retained earnings Total Shareholder Equity Total Liabilities& Shareholder Equity 60,000 8,000 71,600 89,280 228,880 462,510 2Explanation / Answer
Market to book ratio = Market price per share / Book value per share = $5 / $1.91 = 2.62 This ratio gives some idea of whether you are paying too much for what would be left if the company went bankrupt immediately. A higher market to book ratio mean that stock is overvalued.Hence you should consider ZEBRA stock as glamour stock. Working : No.of shares outstanding as of 2016 = Common stock / Par value per share = $60000/$0.50 = 120000 shares Book value per share Zebra Corporation as of 2016 = Total stockholders equity as of 2016 / No.of shares outstanding of common stock Book value per share Zebra Corporation as of 2016 = $228880 / 120000 shares = $1.91 per share