Prior to a recent buyout offer, the stock in Dow Jones & Co. Inc. (the publisher of the Wall Sheet Journal) had a book value (shareholders' equity per share) of approximately $6. The stock had been trading (market value) for $36 per share. Rupert Murdoch and his News Corporation made an unsolicited offer of $60 per share while the market value was $58.60 per share.
a. What are the differences between book value and market value? How are these values determined?
b. Calculate the price-to-book ratio for Dow Jones.
c. Why would News Corporation 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.