Use the tables for the question(s)below.
Estimated 2010 Income Statement and Balance Sheet Data for Ideko Corporation
The following are financial ratios for three comparable companies:

-Based upon the average price-earnings ratio of the comparable firms,Ideko's target market value of equity is closest to:
A)$157 million
B)$155 million
C)$193 million
D)$165 million
E)$191 million

Question

Use the tables for the question(s)below.
Estimated 2010 Income Statement and Balance Sheet Data for Ideko Corporation
  The following are financial ratios for three comparable companies:
 
-Based upon the average price-earnings ratio of the comparable firms,Ideko's target market value of equity is closest to:
A)$157 million 
B)$155 million 
C)$193 million 
D)$165 million 
E)$191 million

Quizplus · Accepted Answer

To calculate the target market value of Ideko's equity, we need to use the Price-Earnings Ratio (P/E Ratio) of the comparable firms.

Average P/E Ratio of comparable firms = (16.3 + 15.6 + 17) / 3 = 16.3

Using this average P/E Ratio, we can calculate Ideko's target market value of equity as:

Target market value of equity = Net Income * Average P/E Ratio

From the table, Ideko's estimated net income for 2010 is $10,000,000.

Therefore, Target market value of equity = $10,000,000 * 16.3 = $163,000,000

The closest option to this value is D) $165 million.

Use the Tables for the Question(s)below