Book value ratio for comparable firms

Assignment Help Accounting Basics

Reference no: EM13963245

You are trying to estimate a price per share on an IPO of a company involved in environmental waste disposal. The company has a book value per share of $20 and earned $3.50 per share in the most recent time period. Although it does not pay dividends, the capital expenditures per share were $2.50 higher than depreciation per share in the most recent period, and the firm uses no debt financing. Analysts project that earnings for the company will grow 25 percent a year for the next five years. You have data on other companies in the environment waste disposal business:

Company	Price	BV/Share	EPS	DPS	Beta	Exp. Growth
Air & Water	$9.60	$8.48	$0.40	$0.00	1.65	10.5%
Allwaste	$5.40	$3.10	$0.25	$0.00	1.10	18.5%
Browning Ferris	$29.00	$11.50	$1.45	$0.68	1.25	11.0%
Chemical Waste	$9.40	$3.75	$0.45	$0.15	1.15	2.5%
Groundwater	$15.00	$14.45	$0.65	$0.00	1.00	3.0%
Intn'l Tech.	$3.30	$3.35	$0.16	$0.00	1.10	11.0%
Ionics	$48.00	$31.00	$2.20	$0.00	1.00	14.5%
Laidlaw	$6.30	$5.85	$0.40	$0.12	1.15	8.5%
OHM	$16.00	$5.65	$0.60	$0.00	1.15	9.50%
Rollins	$5.10	$3.65	$0.05	$0.00	1.30	1.0%
Safety-Kleen	$14.00	$9.25	$0.80	$0.36	1.15	6.50%

The average debt/equity ratio of these firms is 20 percent, and the tax rate is 40 percent.

a. Estimate the average price/book value ratio for these comparable firms. Would you use this average P/BV ratio to price the IPO?

b. What subjective adjustments would you make to the price/book value ratio for this firm and why?

Reference no: EM13963245

Questions Cloud

How many distinct exams can she give : A chemistry professor at ASU has 36 questions that she uses on her exams. Her exams always have 11 questions. How many distinct exams can she give? The order of the questions does not matter.

Constant-growth dividend discount model : Briefly discuss three disadvantages of the constant-growth dividend discount model in its application to investment analysis - identify three alternative methods to the dividend discount model for the valuation of companies.

Appropriate price-sales multiple for longs drug : Estimate the appropriate price/sales multiple for Longs Drug. The stock is currently trading for $34 per share. Assuming the growth rate is estimated correctly, what would the profit margin need to be to justify this price per share?

What are the challenges faced by online instructors : What are the challenges faced by online instructors? What are the required components for the online delivery of education?

Book value ratio for comparable firms : a. Estimate the average price/book value ratio for these comparable firms. Would you use this average P/BV ratio to price the IPO? b. What subjective adjustments would you make to the price/book value ratio for this firm and why?

Descripe what is web cache about secure computer network : Descripe what is each topic about secure computer network and why its important? Describe these topics to somone that has no knowledge in computer networks to deliver the idea to him?

Estimate the price-book value ratio for nch : a. Based on these inputs, estimate the price/book value ratio for NCH. b. How much would the return on equity have to increase to justify the price/book value ratio at which NCH sells for currently?

What is the command that you would use to compile the code : Describe the behavior when you compile the program, with no options. What is the command that you would use to compile the code and create the executable "power2"?

Estimate the value of office : Illiquidity Discount = 0.30 - 0.04 (ln [Revenues in millions]) Estimate the value of Office Help for sale in a private transaction (to an individual).

User Account

All Pages