QUESTION 3

You have a friend who is considering purchasing some shares in Sydney-Harbour-Bridge-for-sale Ltd. The shares are currently trading on the stock exchange at $4.20 each. The financial statements of the company show the net assets are $250,000 and there are 150,000 shares on issue, giving a book value of $1.67 per share. Your friend is confused as to why the financial statements do not reflect the measure of the value of the company on the stock exchange. Explain why this is the case. ( 5 MARKS )