D15-47. Estimating Equity Value Using Industry-Based Multiples Assume that your superior requests that you apply the following multiple to value the set of companies you are currently assigned to follow.
rice Book value R&D expense ???? 2 The list of companies you currently follow is:
Best Buy. . . . . . . . . . . . . . . . . . . . . . . . . . . BBY Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PFE Goldman Sachs Group. . . . . . . . . . . . . . . . GS Pizza Inn Holdings . . . . . . . . . . . . . . . . . . . PZZI Home Depot . . . . . . . . . . . . . . . . . . . . . . . . HD Procter & Gamble. . . . . . . . . . . . . . . . . . . . PG JP Morgan Chase. . . . . . . . . . . . . . . . . . . . JPM Walmart Stores. . . . . . . . . . . . . . . . . . . . . . WMT Kroger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . KR Walt-Disney Company . . . . . . . . . . . . . . . . DIS Required

a. Discuss what is measured by the above multiple. Why might it be especially appropriate for certain industries?

b. Identify a set of companies from the list above for which this multiple is likely better in estimating equity value.

c. Prepare a memorandum to the superior identifying any concerns in using the above multiple in estimating equity intrinsic value.