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
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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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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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