Answer Happy

QUESTION 11 You are estimating the price/earnings multiple to use to value company A by looking at the average price/earnings multiple of comparable firms. Suppose the following are the price/earnings ratios of firms in the industry: Firm B C D E Share Price 130 30 168 100 Total Earnings Share outstanding 5,000,000 1,000,000 6,000,000 2,000,000 30,000,000 5,000,000 12,000,000 3,000,000 a) What is the average P/E ratio? b) Would you use all the comparable firms in calculating the average? Why or why not? c) What assumptions are you making when you use the industry-average P/E ratio to value company. A?