Estimate the Value of a Privately-Held Firm Based on the Following

question 14

Multiple Choice

Estimate the value of a privately-held firm based on the following information: stock price of a comparable firm = $20.00; net income of a comparable firm = $20,000; number of shares outstanding for the comparable firm = 10,000; and earnings per share for the target firm = $3.00.

• A) $10.00
• B) $20.00
• C) $30.00
• D) $40.00
• E) $50.00

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Definitions:

Maturity Value

The amount of money an investment will earn and pay out at the end of its life, including the initial principal and all accumulated interest.

Capitalize Interest

The process of adding interest costs to the balance sheet for the construction of long-term assets, instead of expensing them in the period they are incurred.

Economic Benefit Approach

A method used in accounting and taxation to evaluate transactions based on the economic value received as opposed to the legal form of the transaction.

Economic Worth

The value of an asset, company, or service determined through market dynamics, financial performance, and future earnings potential.