Compute the value of a share of Smith Brothers

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Reference no: EM132792219

Question - The board of directors of Smith Brothers is planning an initial public offering. Management is trying to estimate the share price for its IPO. The company plans to issue 400,000 shares. The consensus forecast among analysts who follow the company is for EPS to be $4.75, up from the company's most recent earnings per share of $4.00. Four comparable firms have been identified for which their EPS and share prices are shown below:

Firm

EPS

Share Price

1

$3.30

$11.55

2

3.50

$15.75

3

2.25

9.00

4

2.70

13.50

Required -

A. Compute the value of a share of Smith Brothers using both the trailing and forward price earnings multiples valuation.

B. On what concept is the price - earnings multiple valuation approach based?

Reference no: EM132792219

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