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Hello, this question asks for the value of Danoca using the P/E Ratio. Although I know the answer would not be as simple as what I’m about to ask but why wasn’t it calculated as price per share / earnings per share x no. of shares = [$3.30/0.40] x 5 mil = $41,250,000.
The answer uses the sector’s P/E ratio which to me doesn’t make sense ….if I’m being asked to value a company I think that I should use the values of that particular company as opposed to that of the sector.
If you were to use the PE of Danoca, then you would come back to Danoca’s current share price (try it and see 🙂 )
However, it could be that Danoca is being badly managed. Far better if you are thinking of buying the company is to see what the average PE is for the sector. This is what Danoca should be able to achieve if it is managed properly, and so this would be a better basis for deciding how much it would be worth paying.
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