Question 4: A firm trading with a total equity market value of $100 million reported earnings of $5 million and book value of net assets (equity) of $50 million. This firm is used as a comparable to price IPO (Initial Public Offering) firm with earnings per share of $2.50 and book value of net assets per share of $30. Neither firm pays dividends.

Requirement 1: If you are a financial analyst, how do you compute per share IPO price using price comparables (multiples)? (12 points)

Requirement 2: The method of price multiple comparison has implementation problems as well as conceptual problems. Indicate one for each of implementation and conceptual problems. (13 points)