Stanley B.Block Geoffrey A.Hirt

As an alternative measure, you also examine the value of the firm based on the price-earnings (P/E) ratio times earnings per share. Since the company is privately traded (not in the public stock market), you will get your anticipated P/E ratio by taking the average value of five publicly traded food industry companies. These P/E ratios were as follows during the period under analysis: Assume Fiber Cereals has earnings per share of exist2.45. What is the stock value based on the P/E ratio approach? Multiply the average P/E ratio you computed times earnings per share. How does this value compare to the dividend valuation model values that you computed in parts a and b