The stock in Dow Jones & Co., Inc. (the publisher of the Wall Street Journal) has a book value (shareholders’ equity per share) of approximately $6. Prior to a buyout offer, the stock had been trading (market value for $36 per share. Rupert Murdoch and his News made an unsolicited offer of $60 per share during the summer of 2007. As of August 14, 2007, the market value as $58.60 per share.
(a) What are the differences between book value and market value? How arc these values determined?
(b) Calculate the price-to-book ratio for Dow Jones.
(c) Why would News offer to pay $60 per share (for a total of $5 billion) to buy a stock trading for $36 per share?
(d) The Wall Street Journal, similar to other newspapers. has struggled against competition posed by the Internet and other electronic outlets. Discuss the effect that macroeconomic factors can have on the value of a stock.