Question

Valuation Using an Income Statement Multiple JAKKS Pacific Inc., a toy manufacturer, reports net income for the recent twelve months of $14.73 million. JAKKS’ has 20.05 million shares outstanding. The industry average PE (using the trailing twelve months earnings) for its competitors is 22.17. Using this industry average PE, estimate the intrinsic value of JAKKS Pacific’s equity. Do not round until your final answer. Round answer to two decimal places.

Answer 1

Answer:

$16.27

Explanation:

For computing the intrinsic value, first we have to compute the earning per share which is shown below:

Earning per share = (Net income) ÷ (Number of shares outstanding)

                              = ($14.73 million) ÷ (20.05 million shares)

                              = 0.734

Now the intrinsic value would be

= Earning per share × P/E ratio

= 0.734 × 22.17

= $16.27