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The table below provides the PE ratio for a selection of international oil companies. Exxon Mobil...

The table below provides the PE ratio for a selection of international oil companies.

Exxon Mobil

12.71

Royal Dutch Shell

10.54

ConocoPhilips

12.1

Chevron

10.49

Statoil

11.73

A new American company, OilOptimist, will be listed on the New York Stock Exchange from 1.1.2014. In 2012, the company had a profit of 11 dollars per share. Use relative valuation to estimate the price per share for OilOptimist.

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Answer #1

Answer:

Under Relative valuation method, company's share value is calculated by comparing it with its competitors.

In this question similar industry companies PE ratio is given and we can use average industry PE ratio to calculate price per share of OilOptimist.

Average PE Ratio= (12.71+10.54+12.1+10.49+11.73)/5

=11.514

Price per share of OilOptimist=EPS*Average PE Ratio

= 11.514*11

=126.654

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