A privately held company ABB wants to be listed on a stock exchange. The company expects...

 

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A privately held company ABB wants to be listed on a stock exchange. The company expects to earn a net profit of $50 million next year. In order to estimate its equity value, management decided to use price multiple valuation model. Based on P/E ratios of public listed companies from the same industry (listed below), calculate the estimated value of equity for company ABB. Company 1 Company 2 Company 3 Company 4 Company 5 P/E ratio 7.0 12.0 8.0 9.0 6.0 (a) Which price multiple is appropriate to be used in the price multiple valuation model for ABB? Is an average of P/E ratios appropriate? (b) Calculate the estimated value of equity for company ABB by using the price multiple from your answer in (a). (c) Why using the price multiple valuation model is problematic? A privately held company ABB wants to be listed on a stock exchange. The company expects to earn a net profit of $50 million next year. In order to estimate its equity value, management decided to use price multiple valuation model. Based on P/E ratios of public listed companies from the same industry (listed below), calculate the estimated value of equity for company ABB. Company 1 Company 2 Company 3 Company 4 Company 5 P/E ratio 7.0 12.0 8.0 9.0 6.0 (a) Which price multiple is appropriate to be used in the price multiple valuation model for ABB? Is an average of P/E ratios appropriate? (b) Calculate the estimated value of equity for company ABB by using the price multiple from your answer in (a). (c) Why using the price multiple valuation model is problematic?

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Lets address each part of the question step by step a Which price multiple is appropriate to be used in the price multiple valuation model for ABB Is an average of PE ratios appropriate To determine t... View the full answer