Multiples analysis: Turner Corp. 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 Jacobs, 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 total value of Turner Corp.? Round to the nearest million dollars.

Question

Quizplus · Accepted Answer

To determine the total value of Turner Corp., we need to use multiples analysis. We can use the price/earnings (P/E) ratio of Jacobs, Inc. since it is a similar firm and all-equity.

First, we need to calculate Jacobs, Inc.'s P/E ratio:

P/E ratio = Share Price / Earnings per share 
Earnings per share = net income / number of shares outstanding

Earnings per share = $182 million / 150 million = $1.21

P/E ratio = $14.25 / $1.21 = 11.78

Next, we can use Jacobs, Inc.'s P/E ratio to calculate the total value of Turner Corp.:

Total value of Turner Corp. = Net income x P/E ratio + Debt

Total value of Turner Corp. = $121 million x 11.78 + $230 million

Total value of Turner Corp. = $1,650.38 million

Rounding to the nearest million, the answer is $1,651 million, which is option B.

Multiples Analysis: Turner Corp