The current market value of a firm's share is $32 million, with 20 million shares outstanding. The net profit after tax is estimated to be $5 million.  Investors are willing to pay a value equivalent to 20 times of the firm's earnings. Based on the price-earnings multiple valuation model, are the firm's shares fairly priced?

Should an investor buy the share? Explain why.

Answer rating: 100% (QA)

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