Question
Please show step by step. Thanks! a. Suppose you are analyzing three firms that are operating in the following industries respectively: (1) Firm A in
Please show step by step. Thanks!
a. Suppose you are analyzing three firms that are operating in the following industries respectively: (1) Firm A in Telecommunications Services Industry, (2) Firm B in Telecommunications Equipment Industry, and (3) Firm C in Computer and Network Equipment Industry. Suppose for all three firms (A, B, and C), earnings per share is $2. For each firm, use the multiples method and the P/E (price/earnings) ratio to estimate the price per share of Firm A, B, and C respectively.
Hints: For each firm, pick five real-life firms from the corresponding industry group, then find the average of the multiples. For example, for firm A, find five firms from the Telecommunications Services Industry. Find the P/E ratio of each of these five firms. For example, P/E ratios for these five firms are 1, 2, 3, 4, and 5 respectively; then the average P/E of the five peers: (1+2+3+4+5)/5=3. Use this peer average (3 in this example) to apply to firm As earnings per share to find the price per share of Firm A. In our example, Firm As price per share = earnings per share average P/E = $2 3 = $6.00. Complete this process for Firm A, B and C respectively, so you should have a price per share for A, one for B, and one for C.
b. Select an industry and provide a real-life example of two firms within the same industry with one firm at least two times larger (use revenue as the measure of size) than the other one. Report for these two firms the most recent numbers on: revenue, historical growth rate (use the past five years revenue numbers), return on equity (ROE), return on assets (ROA), and dividend payout ratio (or dividend payment in dollars). Discuss the differences in these numbers between the two firms. Use value creation concepts to support your discussion. Report the sources and date(s) on which you collected information
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