Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?

A company has:

• A price/earnings (P/E) ratio of 10.

• Earnings of $10 million.

• A market equity value of $100 million.

The directors forecast that the company’s P/E ratio will fall to 8 and earnings fall to $9 million.

Which of the following calculations gives the best estimate of new company equity value in $ million following such a change?

A)

B)

C)

D)

A . Option A
B . Option B
C . Option C
D . Option D

View Answer

Answer: A