We want to value a private software firm using relative valuation. Assume the following:

• the average Price/Sales ratio for the software industry is 2
• the average Price/Earnings ratio for the software industry is 5

1. If we know the private firm's sales are $3 million then the estimated value of this firm would be equal to:

2. If we know the private firm's earnings are $1.5 million then the estimated value of this firm would be equal to:

[Select ] 2*5*3 = $ 30 million 5*3 = $15 million (1/2)*3 = $1.5 million 2*3 = $6 million