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Which of the following statements are correct regarding the method of valuation by comparables? (Choose 2). 1. A firm's market value can be estimated by using the share price of any similar sized firm. 2. A firm's market value can be estimated by finding the share price of a similar firm and using that value. 3. A firm's market value can be estimated by multiplying its book value by the market/book ratio for a similar firm. 4. A firm's market value can be estimated by multiplying its earnings per share by the P/E ratio for a similar firm.

Respuesta :

Answer:

Option 3 & 4

Explanation:

A firm's market value can be computed by multiplying it's earnings per share with P/E Ratio of a similar firm.

Earnings per share = [tex]\frac{Earnings\ attributable\ to\ stockholders}{No.\ of\ shares\ outstanding}[/tex]

Price Earnings Ratio = [tex]\frac{Market\ Price\ per\ share}{Earnings\ per\ share}[/tex]

The product of the above two would be the market price per share of the firm.

Similarly, Market/Book ratio = Total Market Capitalization/Book Value

Also, known as price to book ratio, the product of Market/Book ratio of a similar company and Book value of a company yields Market value of the company.

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