Question: 7. Market multiple analysis The discounted cash flow model and the corporate valuation model are the most widely used valuation techniques. Often these valuations are

7. Market multiple analysis

The discounted cash flow model and the corporate valuation model are the most widely used valuation techniques. Often these valuations are accompanied by market multiple analysis, which is based on the fundamental concept that similar assets should have similar values.

Weghorst Co. is a privately owned firm with few investors. Investors forecast their earnings per share (EPS) to reach $3 this coming year. The average price-to-earnings (P/E) ratio for similar companies in the S&P 500 is 8.

The estimated intrinsic value of Weghorst Co.s stock will be _____ per share.

Market multiple analysis is also used to calculate the value of a company, which is further used to calculate the intrinsic value per share of the firm.

Suppose you have the information given in the following table for Company X.

	Year 1	Year 2
EBITDA	$7,650	$9,150
Total value of equity	$76,500	$82,500
Total firm value	$99,450	$132,000

What is value of the entity multiple of Company X in Year 1?

A. 14.43

B. 13.00

C. 16.90

D. 10.00

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