Question #85
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: 30
Status: Unattempted
Correct Answer: B
Question
Enhanced Systems, Inc., (ESI) has a price to book value (P/
Answer Choices:
A. should be purchased because it is an undervalued stock
B. is of indeterminate relative value, due to conflicting metrics
C. should be sold because it is an overvalued stock
Explanation
The price per dollar of book value of ESI is considerably lower than that for the median of
the peer group, which implies that it may well be undervalued. For the method of
comparables, we most appropriately select as comparison assets companies operating in
the same industry as the subject company.