Solution-Estimate the equity value per share

Estimate the equity value per share

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Reference no: EM133076155

SG Oil Ltd is a financially-distress firm. It had just reported a net loss of $0.10 per share recently (t = 0). Analysts, however, are predicting that the firm will turnaround and post a positive EPS of $0.26 per share in year 3 if the firm is able to overcome its existing cash flow problem. Estimate the equity value per share of SG Oil today (t = 0), given the following:

SG Oil's cost of equity is equal to 20%.
There is an 80% probability that SG Oil will default in the next 3 years and that the firm's equity will be worth nothing if the firm does not survive.
The current PE ratio for comparable (going concern) firms in the same industry, which is equal to 15.0 times, is assumed to remain constant over time.

Reference no: EM133076155

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Estimate the equity value per share

Reference no: EM133076155

Reference no: EM133076155

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