Sassycat, Inc. has a reported book value of $2 million and a market value of $10 million. This means that the company is valuing its stock at 5 times what shareholders are willing to pay.

Question

Quizplus · Accepted Answer

The market value represents what shareholders are willing to pay for the company's stock, while the book value represents the value of the company's assets minus its liabilities. Therefore, the company is actually valuing its stock at 1/5 or 20% of its market value, not 5 times the market value as stated in the question.