Explanation

Step 1: Calculate the adjusted asset values

• Inventories: Reported value = $15.0 million Market value = 110% × $15.0 million = $16.5 million Adjustment = $16.5 - $15.0 = $1.5 million increase

• Net fixed assets: Reported value = $25.0 million Market value = 115% × $25.0 million = $28.75 million Adjustment = $28.75 - $25.0 = $3.75 million increase

• Other assets (Cash, Accounts receivable): Remain at reported values

Step 2: Calculate adjusted total assets

Reported total assets = $50.0 million Add inventory adjustment: +$1.5 million Add fixed assets adjustment: +$3.75 million

Adjusted total assets = $50.0 + $1.5 + $3.75 = $55.25 million

Step 3: Calculate adjusted equity value

Since liabilities remain unchanged at $22.5 million: Adjusted equity = Adjusted total assets - Total liabilities Adjusted equity = $55.25 - $22.5 = $32.75 million

Step 4: Calculate adjusted equity value per share

Adjusted equity per share = Adjusted equity ÷ Shares outstanding Adjusted equity per share = $32.75 million ÷ 2.0 million shares = $16.375 per share

Step 5: Compare with current market price

Current market price = $18.00 per share Adjusted equity value per share = $16.375 per share

Step 6: Determine valuation status

Since current market price ($18.00) > adjusted equity value per share ($16.375), the shares are overvalued based on the asset-based valuation approach.

Conclusion: The company's shares are most likely overvalued (Option C).