Valuation with price/earnings multiples For each of the firms shown in the follo
ID: 2798686 • Letter: V
Question
Valuation with price/earnings multiplesFor each of the firms shown in the following table, use the data given to estimate its common stock value employing price/earnings
(P/E)
multiples.(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Firm
Expected EPS
Price/earnings multiple
A
$3.003.00
6.26.2
B
4.504.50
10.010.0
C
1.801.80
12.612.6
D
2.402.40
8.98.9
E
5.105.10
15.015.0
The value of firm A's common stock is
$nothing.
(Round to the nearest cent.)
Firm
Expected EPS
Price/earnings multiple
A
$3.003.00
6.26.2
B
4.504.50
10.010.0
C
1.801.80
12.612.6
D
2.402.40
8.98.9
E
5.105.10
15.015.0
Explanation / Answer
Price=EPS*Price/Earnings multiple
Firm A: 3.00*6.2=18.6
Firm B: 4.50*10.0=45
Firm C: 1.80*12.6=22.68
Firm D: 2.40*8.9=21.36
Firm E: 5.10*15.0=76.5
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