Question
Lockheed has $800 million in cash, and it also owns 10% of the stock of ABC Corporation. ABC Corporation has 100 million shares outstanding, and
- Lockheed has $800 million in cash, and it also owns 10% of the stock of ABC Corporation. ABC Corporation has 100 million shares outstanding, and its shares are trading at $50/share. Estimate the Market Value of Equity, and estimate the current share price of Lockheed. The firm had debt outstanding of $18.00 billion (in book value terms), trading at a market value of $20.0 billion and yield a pre-tax interest rate of 8%.
(Hint: Solve for the value of equity from the following relation:
Enterprise Value = Market Value of Equity + Market Value of Debt Cash & Investments)
Briefly explain your recommendation for the stock of the company.
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Options Trading
Authors: Mark Stock
1st Edition
108121404X, 978-1081214043
