24 Jul WHAT SHOULD THE SHARE PRICE BE WHEN USING THE P/E (OR PE) RATIO?
The telecommunication division of SunCorp has annual earnings (net income) of $3000000 and book va Show more The telecommunication division of SunCorp has annual earnings (net income) of $3000000 and book value of equity of $35000000. The main publicly traded competitor in the telecommunication industry is Call Sarah Corporation (CS). CS currently has a P/E (or PE) ratio of 20 and a M/B (or Market-to-book) ratio of 1.5. Sun Corp wants to sell its division by issuing 2000000 shares. Suppose CS is the only comparable firm use comparables approach to estimate the share price of this issuance. (a) What should the suggested share price be when the comparison is done using the M/B (or Market-to-book) ratio? (b) What should the share price be when using the P/E (or PE) ratio? Show less
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