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Find the average debt-equity ratio of the firms

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Reference no: EM131690420

Question: You are trying to estimate a price per share on an initial public offering 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. While 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% a year for the next five years. You have data on other companies in the environment waste disposal business:

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

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

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

Reference no: EM131690420

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