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A firm reports book value of shareholders' equity of $850 million with 25 million shares outstanding. Those shares trade at $45 each in the stock market. An analyst values the equity by following the scheme: Value = Book value + Extra value. She calculates extra value of $675 million. Should she issue a buy or sell recommendation to her clients? Explain

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Solution Summary

The solution recommends a buy or sell on stock based on its valuation.

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Value of the company as per analyst is

Value = Book value + Extra ...

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