Market cap = Equity Value ? - Help
Hey guys, hope you all are fine. Please help me with this question:
Company A does an IPO and issues 100,000 out of 400,000 shares and the share price is $20. So then shares outstanding is 100,000 and market cap is $2 million.
In my view the actual value of the firm is $8 million, since 1/4 is public and this stake is worth $2 million. But I heard it is wrong because market cap values the entire equity, and not only the public stake. So, the entire equity value is worth $2 million.
It doesn't make sense to me since if you buy all the public shares you are going to pay $2 million and have only 25% of the company, so market cap is not valuing the entire equity.
I appreciate if you guys help me to understand what is wrong with my view.
You’re correct not sure whats wrong with it
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