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 Book Value and Market Value ◦ Book value is determined by IFRS ◦ Shown at their historical cost adjusted for depreciation ◦ Market value is the price.

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Presentation on theme: " Book Value and Market Value ◦ Book value is determined by IFRS ◦ Shown at their historical cost adjusted for depreciation ◦ Market value is the price."— Presentation transcript:

1  Book Value and Market Value ◦ Book value is determined by IFRS ◦ Shown at their historical cost adjusted for depreciation ◦ Market value is the price at which the firm can resell an asset ◦ Typically, market value ≠ book value 1© 2012 McGrawHill Ryerson Ltd. Chapter 3 - LO2

2  An Example According to IFRS, Jupiter Auto has equity worth $6 billion, debt worth $4 billion, assets worth $10 billion. The market values Jupiter’s 100 million shares at $75 per share and the debt at $4 billion. What is the market value of Jupiter’s assets? Assets= Liabilities + Equity  Assets = $4 bn + $7.5 bn = $11.5 bn 2© 2012 McGrawHill Ryerson Ltd. Chapter 3 - LO2

3 Book Value SFP Assets = $10 bn Debt = $4 bn Equity = $6 bn Market Value SFP Assets = $11.5 bn Debt = $4 bn Equity = $7.5 bn 3© 2012 McGrawHill Ryerson Ltd. Chapter 3 - LO2

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