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The earnings of a private European firm are €2 million, and the average P/E ratio of...

The earnings of a private European firm are €2
million, and the average P/E ratio of publicly traded European firms in the
same industry is 5. This firm is considering the possibility of going public
in which it would issue one million shares. If the private firm has similar
growth potential and other characteristics similar to other publicly traded
firms in the industry, its value can be estimated as _______
million euros

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Answer #1

Value of firm = Earnings × P/E ratio of similar firm or industry

In the given case, the earning of firm is € 2 million and the PE ratio of another similar firm working in same industry is 5.

Therefore, as desired, the value of firm will be

= €2 Million x 5

Value of Firm= € 10 million

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