Determine the net income of a comparable firm based on the following information: value of the target firm = $4,000,000; net income of the target firm = $200,000; stock price of the comparable firm = $30; and number of shares of stock outstanding for the comparable firm = 300,000.

Question

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The net income of the comparable firm can be determined by first calculating the value of the comparable firm using its stock price and the number of shares outstanding, which is $30 * 300,000 = $9,000,000. Then, using the value-to-net income ratio of the target firm ($4,000,000 / $200,000 = 20), we can find the net income of the comparable firm by dividing its value by this ratio: $9,000,000 / 20 = $450,000.

Determine the Net Income of a Comparable Firm Based on the Following