Question

As part of a valuation analysis, you have identified two comparables: KLA Tencor (KLA) and Lam Research (LAM). KLA has company value of $9,600, market value of equity of $8,000, and net income of $400. LAM has company value of $12,000, market value of equity of $6,000, and net income of $500. If KLA has NOPAT of 400 and LAM has NOPAT of 600, the P/E ratios for KLA and LAM should be, respectively: Group of answer choices 20 and 12 14 and 8 Not enough information 40 and 30 24 and 20

Answer 1

Answer:

The correct option is 20 and 12. That is, the P/E ratios for KLA and LAM should be, respectively: 20 and 12.

Explanation:

The price-earnings (P/E) ratio can be calculated using the following formula:

P/E ratio = Market value of equity / Net income ............... (1)

From the question. we hav:

KLA market value of equity = $8,000

KLA net income = $400

LAM market value of equity = $6,000

LAM net income = $500

Using equation (1) and the above information, we have:

P/E ratios for KLA = $8,000 / $400 = 20

P/E ratios for LAM = $6,000 / $500 = 12

Therefore, the correct option is 20 and 12. That is, the P/E ratios for KLA and LAM should be, respectively: 20 and 12.