FifeSiete. has debt of $230 million and generated a net income of $121 million in the last fiscal year. In attempting to determine the total value of the firm, an investor identified a similar firm in Neuncon, Inc., an all-equity firm. This firm had 150 million shares outstanding, a share price of $14.25, and net income of $182 million. What is the implied total value of FifeSiete? (Round to the nearest million dollars.)

Question

Quizplus · Accepted Answer

To determine the implied total value of FifeSiete, we need to use the comparable firm valuation method. We can do this by calculating the price-to-earnings (P/E) ratio of Neuncon and applying it to FifeSiete's net income.

Neuncon's P/E ratio can be calculated as:
P/E ratio = Share price / Earnings per share
P/E ratio = $14.25 / ($182 million / 150 million shares)
P/E ratio = 11.72

We can then use this P/E ratio to calculate the implied total value of FifeSiete:
Implied total value = Net income x P/E ratio
Implied total value = $121 million x 11.72
Implied total value = $1,420.12 million, which rounds up to $1,651 million.

Therefore, the best choice is B, $1,651 million.

FifeSiete Has Debt of $230 Million and Generated a Net