Question #26
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 9
Status: Correct
Correct Answer: A
Question
Shares of TKR Construction (TKR) are selling for $50. Earnings for the last 12 months were $4.00 per share. The average trailing P/E ratio for firms in TKR's industry is 15. The appropriate WACC is 12%, and the risk-free rate is 8%. Assume a growth rate of 0%. Using the method of comparables, what price is indicated for TKR?
Answer Choices:
A. $50.00
B. $60.00
C. $33.33
Explanation
Using the method of comparables, TKR should be priced as (15 × 4) = $60.00.