The earnings of a private European firm are €5 million, and the average P/E ratio of publicly traded European firms in the same industry is 12. This firm is considering the possibility of going public in which it would issue one million shares. If the private firm has similar growth potential and other characteristics similar to other publicly traded firms in the industry, its value can be estimated as ____ million euros.
A) 2.4
B) 60.0
C) 41.7
D) 12

Question

Quizplus · Accepted Answer

The estimated value of the firm can be calculated by multiplying its earnings by the average P/E ratio of similar publicly traded firms: €5 million * 12 = €60 million.

The Earnings of a Private European Firm Are €5 Million