Question

Valuation Using the PE Multiple

The following table provides summary data for Applied Materials Inc. and its competitors, KLA Tencor Corporation and Lam Research Corporation.

(in millions)			Applied Materials	KLA Tencor	Lam Research
Company assumed value			-	$9,790	$11,529
Equity assumed value			-	$8,987	$13,244
NOPAT			$1,444	$440	$674
Net income			$1,377	$421	$711
Net nonoperating obligations (assets)			$(1,369)	$803	$(1,715)
Common shares outstanding			1,160.0	157.9	158.5

a. Compute the price to net income ratio for both KLA Tencor Corporation and Lam Research Corporation.

Round answers to two decimal places, when applicable.

	Price to Net income ratio
KLA Tencor	Answer
Lam Research	Answer

b. Use KLA Tencor Corporation and Lam Research Corporation as comparables, along with the price to net income ratios from part a, and then estimate for Applied Materials Inc. its equity intrinsic value and its equity intrinsic value per share.

Round equity intrinsic value to the nearest million.

Round equity intrinsic value per share to two decimal places.

KLA Tencor Corporation
Equity intrinsic value		$Answer	million
Equity intrinsic value per share		$Answer

Answer 1

a. Computation of Price to Net Income Ratio
( in Million)	KLA Tencor	Lam Research
Net income (a)	$421.00	$711.00
No. of Share Outstanding (b)	157.9	158.5
Net Income Per Share(c= a/b)	$2.67	$4.49
Company Assumed Value ( d)	$9,790.00	$11,529.00
Price per Share (e= d/b)	$62.00	$72.74
Price to net income ratio(e/c)	23.25	16.22
Computation of Intrinsic Value and Value per Share
	Comparables
For Applied Materials Inc.	KLA Tencor	Lam Research
Net income Per Share	$1.24	$1.24
Price to net income ratio	$23.25	$16.22
Equity Intrinsic Value per share	$28.95	$20.19
Equity Intrinsic Value	$33,579.00	$23,414.73