If the P/E Ratio for the Comparable Firm Is Equal

question 31

True/False

If the P/E ratio for the comparable firm is equal to 10 and the after-tax earnings of the target firm are $2 million, the market value of the target firm would be $5 million.

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Definitions:

Revenues

The total amount of income generated by the sale of goods or services related to the company's primary operations.

Operating Costs

Expenses associated with running a business on a daily basis, such as salaries, rent, and utilities.

Activity

Any action or series of actions performed by individuals or groups, often aimed at achieving a particular goal or outcome.

Liquidity

A measure of how easily assets can be converted into cash without significant loss in value.