Question

In: Accounting

Firm Value/Sales P/E Ratio Sales (mil) Net income (mil) Fast Air 1.02 7.70 7,286 214 Southeastern...

Firm

Value/Sales

P/E Ratio

Sales (mil)

Net income (mil)

Fast Air

1.02

7.70

7,286

214

Southeastern Airlines

0.87

10.50

17,879

1,567

Western Skies

1.44

11.40

35,580

12,470

Northern Winds

0.73

5.80

2,023

1

East Frontiers

0.80

4.90

5,450

790

Southern Ventures

5.14

9.20

21,373

5,890

Slow Motion

1.05

9.17

10,900

-105

Sweet Tracks

1.67

5.37

12,200

2,880

Wild Adventures

10.90

44.19

1,029

357

World Horizons

11,561

2,550

  1. Calculate the value of World Horizons using the average value-to-sales ratio of its peers
  2. Calculate the value of World Horizons using the median P/E ratio of its peers
  3. Which company should not be used as a comparable peer for World Horizons

Solutions

Expert Solution

a Average Alternative : Simple average
A
Firm Value/Sales
Fast Air 1.02
Southeastern Airlines 0.87
Western Skies 1.44
Northern Winds 0.73
East Frontiers 0.8
Southern Ventures 5.14
Slow Motion 1.05
Sweet Tracks 1.67
Wild Adventures 10.9
Mean 2.624
World horizon value =11561*2.624
30336.064 million
b Median
Firm P/E Ratio
Fast Air 7.7
Southeastern Airlines 10.5
Western Skies 11.4
Northern Winds 5.8
East Frontiers 4.9
Southern Ventures 9.2
Slow Motion 9.17
Sweet Tracks 5.37
Wild Adventures 44.19
Median 9.17
(using excel formula Median)
World horizon value =2550*9.17
23383.5 million
c World Adventures is not comparable peer as its Value sales and P/E are too high compared to all other companies in bracket.

I have caluclate Part A with simple average as question does not specified for weighted average. Leave a comment if otherwise or in case you have any further query. Dont forget to hit thumbs up if you feel like it.

ekkarill92 answered 2 years ago
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