Question #117 - Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples

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: 41

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Shared Context

- Calculate the value of equity to the nearest $1 million using a FCFE model and the cash flows / assumptions that Pedroia uses in his "FCF Valuation Using Forecasted Cash Flows" valuation. A) $1,457 million. B) $2,171 million. C) $1,620 million.

Question

Which of the following is the normalized earnings figure for 2x10, which will be calculated by Pedroia using the average return on equity method?

Answer Choices:

A. $2.63

B. $2.72

C. $2.59

Explanation

Using the average return on equity method, normalized EPS is calculated as the average return on equity multiplied by the current book value per share. Average ROE = (14.8 + 15.4 + 18.0) / 3 = 16.07% Normalized EPS = 0.1607 × 16.40 = $2.63

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