Accounting Information System

Assume that you work for a corporation and discover that news of a new product it developed had contributed greatly to the recent rise in its stock price. Your company’s new product has been rendered obsolete by the new product of a competitor. You own a substantial number of shares of the corporation’s stock. The news of the competitor’s discovery has not been made public.

Should you sell the stock? Why or why not?

The market value of a corporation as a whole can be estimated by multiplying the number of shares of common stock times the market value at any given time. The corporation’s book value is simply the book value of its assets less the book value of its liabilities, or its recorded equity value.

Discuss reasons why these two values might differ for the same company and why the difference might be greater or less for different companies.

Solution: