Question

Question text

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			-	$10,000	$11,739
Equity assumed value			-	$9,197	$13,454
NOPAT			$1,444	$440	$674
Net income			$1,377	$479	$769
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

Solution :-

(A)

Price to Net Income Ratio = Equity Assumed Value / Net Income

In Case of KLA Tencor = $9,197 / 479 = 19.20

In Case of Lam Research = $13,454 / 769 = 17.50

(B)

Average Price to Net Income Ratio = ( 19.20 + 17.50 ) / 2 = 18.35

Common Shares Outstanding = 1,160.00

Net Income = 1,377

Earning Per Share = $1,377 / 1,160 = $1.19

Equity Intrinsic Value Per Share = 1.19 * 18.35 = $21.78

Equity Intrinsic Value = $21.78 * 1,160 = $25,265.11

If there is any doubt please ask in comments

Thank you please rate