Nativity is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000 and 10,000 shares were outstanding. The owners were tying to determine the value of the stock before prior to taking the company public. A similar firm that is publicly traded, had a P/E ratio of 5. Estimate the market value of one share the Nativity’s stock.
Nativity is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000 and 10,000 shares were outstanding. The owners were tying to determine the value of the stock before prior to taking the company public. A similar firm that is publicly traded, had a P/E ratio of 5. Estimate the market value of one share the Nativity’s stock.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Nativity is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000 and 10,000 shares were outstanding. The owners were tying to determine the value of the stock before prior to taking the company public. A similar firm that is publicly traded, had a P/E ratio of 5. Estimate the market value of one share the Nativity’s stock.
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Step 1
The market value of a share refers to the price of the securities being traded in the stock exchange market. It is to be calculated by multiplying the earning per share by the price-earning ratio.
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