FOR THIS AND THE NEXT 2 Based on the corporate valuation model, the value of Weidner Co.\'s operations is $1,200 million. The company\'s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in TOTAL common equity. Weidner has 30 million shares of common stock outstanding. Calculate [I] Total intrinsic value of the firm (Vf) and [II] Intrinsic market value added to the firm (IMVA). A. $1,200 million; $30 million B. $1,300 million; $30 million C. $1,300 million; $150 million D. None of the above QUESTION 22 [REFER TO ABOVE PROBLEM] Calculate intrinsic value of equity. A. $470 million B. $830 million C. $1,200 million D. $1,300 million D. None of the above QUESTION 23 [REFER TO ABOVE PROBLEM] Calculate intrinsic stock price per share. A. $27.67 B. $30.00 C. $12.17 D. None of the above QUESTION 24 A consistently high operating capital requirement ratio (OCRR) ___ while a consistently low operating profit margin after taxes (OPMAT) ___ A. Creates value; also creates value B. Destroys value; also destroys value C. Destroys value; creates value D. Creates value; destroys value Solution a) Total Intrinsic Value of Firm, Vf = Value of Operating Activities + Value of Non Operating activities Value of Operating Activities = 1200 million; Value of Non Operating activities = Value of Short term investments = $100 million Total Intrinsic Value of Firm, Vf = 1200 + 100 =$1300 million Intrinsic Market Value added(IMVA) = Vf - Invested Capital Invested Capital = Long Term Debt + Preferred Stock + Common Equity = 300 + 50 + 800 = 1150 million So IMVA = 1300 - 1150 = $150 million Option C b) Intrinsic Value of Equity, Ve = Vf - Debt - Preferred Stock Debt = Long term Debt + Notes Payable = 300 + 120 =$420 million So intrinsic Value of Equity = 1300 - 420 - 50 = $ 830 million Option B c) Intrinsic Stock Price per share = Ve/No. of shares of Common stock = 830/30 = $27.67 Option A d) Option D, High Cash availability enable company to invest in new opportunities & enables it to pay off any immediate liability with ease. Consistently Low Profit after tax reduces company\'s ability to invest in new ventures.

1. FOR THIS AND THE NEXT 2 Based on the corporate valuation model, the value of Weidner
Co.'s operations is $1,200 million. The company's balance sheet shows $80 million in accounts
receivable, $60 million in inventory, and $100 million in short-term investments that are
unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120
million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180
million in retained earnings, and $800 million in TOTAL common equity. Weidner has 30
million shares of common stock outstanding. Calculate [I] Total intrinsic value of the firm (Vf)
and [II] Intrinsic market value added to the firm (IMVA).
A. $1,200 million; $30 million
B. $1,300 million; $30 million
C. $1,300 million; $150 million
D. None of the above
QUESTION 22
[REFER TO ABOVE PROBLEM] Calculate intrinsic value of equity.
A. $470 million
B. $830 million
C. $1,200 million
D. $1,300 million
D. None of the above
QUESTION 23
[REFER TO ABOVE PROBLEM] Calculate intrinsic stock price per share.
A. $27.67
B. $30.00

2. C. $12.17
D. None of the above
QUESTION 24
A consistently high operating capital requirement ratio (OCRR) ___ while a consistently low
operating profit margin after taxes (OPMAT) ___
A. Creates value; also creates value
B. Destroys value; also destroys value
C. Destroys value; creates value
D. Creates value; destroys value
Solution
a)
Total Intrinsic Value of Firm, Vf = Value of Operating Activities + Value of Non Operating
activities
Value of Operating Activities = 1200 million; Value of Non Operating activities = Value of
Short term investments = $100 million
Total Intrinsic Value of Firm, Vf = 1200 + 100 =$1300 million
Intrinsic Market Value added(IMVA) = Vf - Invested Capital
Invested Capital = Long Term Debt + Preferred Stock + Common Equity = 300 + 50 + 800 =
1150 million
So IMVA = 1300 - 1150 = $150 million
Option C
b) Intrinsic Value of Equity, Ve = Vf - Debt - Preferred Stock
Debt = Long term Debt + Notes Payable = 300 + 120 =$420 million
So intrinsic Value of Equity = 1300 - 420 - 50 = $ 830 million
Option B
c) Intrinsic Stock Price per share = Ve/No. of shares of Common stock = 830/30 = $27.67
Option A
d) Option D, High Cash availability enable company to invest in new opportunities & enables it
to pay off any immediate liability with ease. Consistently Low Profit after tax reduces

3. company's ability to invest in new ventures